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Heightened signs of ag sector financial pressure... Agricultural credit conditions in the Tenth Federal Reserve District, that includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri, tightened in the second quarter of 2024 due to declining farm income, lower crop prices, and high production costs. Farm incomes continued to weaken, particularly in crop-heavy states like Kansas, Missouri and Nebraska, while cattle prices provided some support. Farm borrower liquidity declined, and loan demand increased sharply, but repayment rates fell, indicating growing financial pressure on farmers.
Despite these challenges, agricultural credit stress remained limited, though signs of financial strain are emerging. Interest rates on farm loans stayed relatively high, and farmland values grew more slowly, with ranchland values showing relative strength. Lenders expect land values to stabilize, with some anticipating further declines in cropland values and increases in ranchland values. Overall, the agricultural sector is experiencing modest financial deterioration amid ongoing economic pressures.
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USDA to expand H5N1 testing of beef in slaughterhouses... USDA will expand testing for the H5N1 virus in beef entering the food supply as part of its response to the ongoing outbreak among dairy cattle, while reiterating U.S. beef and dairy products remain safe to consume. USDA officials said the tests will begin in mid-September. The expanded testing will continue for the rest of the year, and will focus on beef from dairy cows.
In May, USDA tested 109 beef samples from dairy cows sent to slaughter and found H5N1 virus particles in one cow’s tissue sample. Older dairy cattle are often slaughtered for ground beef.
FDA is talking with states about the plausibility of additional nationwide raw milk testing. The agency noted none of 167 samples this summer, which included milk, ice cream, hard cheese, butter, cream cheese and aged raw milk cheese, contained viable H5N1 virus. One-in-six dairy products in U.S. retail stores contained signs of inactive H5N1 virus. FDA said results showed pasteurized dairy remains safe to consume.
The Centers for Disease Control and Prevention is also working on expanding its surveillance wastewater testing to H5 viruses in advance of the fall and winter flu season.
USDA updates to meat S&D tables... USDA raised its 2024 beef production forecast 81 million lbs. from last month due to higher steer/heifer and cow slaughter, which more than offsets lighter dressed weights. Beef production is still expected to decline 0.9% from last year. USDA increased the beef export forecast to reflect data through the first half of the year, though beef shipments are still expected to decline 3.2% from this year. The 2024 cash steer price was increased $1.25 from last month to $188.11, which would be up $12.57 from last year.
For 2025, USDA cut beef production by 20 million lbs., with the forecast now calling for a 4.8% year-over-year decline. The export forecast for next year was unchanged and expected to fall 15.0% from this year. USDA kept its cash cattle price forecast at $191.00, up $2.89 from this year.
USDA cut its pork production forecast for this year by 91 million lbs., reflecting lower slaughter and reduced weights in the third quarter. Pork production is still expected to rise 2.7% from last year. The pork export outlook was reduced 125 million lbs., reflecting trade data through June and expected reduced competitiveness in several key markets during the second half of the year. Pork exports are still expected to rise 4.4% from last year. USDA now forecasts the average cash hog price at $59.38, up 25 cents from last month and 79 cents above last year.
For 2025, USDA left its pork production forecast unchanged, calling for a 1.8% increase from this year. The export forecast was cut 250 million lbs., though shipments are still expected to rise 3.4% from this year. USDA lowered its 2025 average cash hog price projection by $1.00 from last month to $58.00, with prices now expected to fall $1.38 from this year.
Conab raises Brazilian corn export forecast despite smaller crop estimate... Brazil’s national crop agency Conab trimmed its 2023-24 Brazilian corn production forecast by 210,000 MT to 115.65 MMT amid a cut to the safrinha crop due to reduced planted acreage and yield. Despite the reduced production forecast, Conab raised its 2023-24 Brazilian corn export outlook by 2.5 MMT to 36 MMT.
Conab kept its Brazilian soybean production estimate at 147.38 MMT and maintained the 2023-24 export forecast of 92.4 MMT.
Producer inflation rises less than expected in July... The U.S. producer price index (PPI) rose 0.1% month-over-month in July following a 0.2% rise in June. Economists expected another 0.2% increase. On an annualized basis, PPI increased 2.2%, easing from an upwardly revised 2.7% gain in June and below market expectations of 2.3%.
Core PPI, minus food, energy and trade, was unchanged from June and 3.3% above year-ago.
The July PPI may influence the Federal Reserve’s monetary policy decisions, especially if consumer inflation metrics also show signs of easing. Consumer price data for July will be released Wednesday.
Neiffer addresses key ag issues... Paul Neiffer (Farm CPA Report) was on AgriTalk on Monday with Chip Flory. They discussed the following topics:
Negative scoring of the House Ag farm bill proposal by the CBO
The Congressional Budget Office (CBO) has evaluated the House Agriculture Committee’s farm bill proposal and determined that it would increase deficit spending by approximately $33 billion. This negative scoring suggests that the proposed bill exceeds the budgetary limits set for agricultural spending, raising concerns about its fiscal sustainability and potential impacts on the federal deficit.
USDA clawing back 2022 ERP payments
USDA’s Emergency Relief Program (ERP) for 2022 aims to assist agricultural producers affected by natural disasters. However, there have been issues with the USDA reclaiming payments from producers due to “immaterial acres” not covered by crop insurance. This clawback has caused frustration among farmers who believed they were eligible for relief but are now facing demands to return funds.
R&D tax credit issues
There have been discussions about the misuse of the Research and Development (R&D) Tax Credit in the agricultural sector. Some promoters have been incorrectly touting tax credits that farmers may not qualify for, leading to potential audits and financial discrepancies. The complexity of agricultural research and the stringent eligibility criteria for the R&D Tax Credit pose significant challenges for farmers trying to claim these benefits.
Sen. Elizabeth Warren’s proposal to increase estate taxes
Sen. Elizabeth Warren has proposed increasing estate taxes as part of a broader effort to address wealth inequality. Her proposal includes a 2% tax on net worth between $50 million and $1 billion, with an additional 1% surtax on wealth above $1 billion. This initiative aims to generate significant revenue by targeting the wealthiest households, potentially impacting farmers with substantial estates.
Trump’s potential 60% tariffs could deepen China’s economic vulnerability... China managed to recover from the economic impact of the trade war with the U.S. during President Donald Trump’s administration. However, if Trump wins the upcoming presidential election, the next round of the trade conflict is expected to be much more challenging for China, the Wall Street Journal reports. Trump has proposed raising tariffs on Chinese imports to 60% or more, which would significantly hurt China’s economy that relies heavily on manufacturing and exports. This reliance makes China more susceptible to further escalation in the trade war. Although China has been increasing its exports to developing economies since 2018, countries like India, Brazil and Mexico are starting to push back due to concerns about their own domestic industries and jobs. The economic consequences for China could be severe if this trade conflict intensifies.
De-dollarization... Rising protectionism and the impact of geopolitical tensions on supply chains are leading to a retreat from free trade and capital flows. Some observers say this shift could push the world toward economic autarky (system of self-sufficiency and limited trade), with trade blocs based on geopolitical and industrial complementarities, reducing the demand for the dollar as the dominant currency.
In 2023, nearly 3,000 trade restrictions were imposed globally, five times the number in 2015. The broader trend may be toward trade blocs. Rather than geographical groupings, these may be between geopolitically like-minded and industrially complementary trading partners; for example, Russia (rich in natural resources) and China (a manufacturing powerhouse). This reduces the need for a dominant reserve currency, splintering demand into multiple currencies needed to support specific trade and investment flows. The expansion of the BRICS, redenomination of some trade and establishment of non-dollar payment systems are tentative moves in this direction.
Debtor countries, such as the U.S., may find it more difficult to fund budget and trade deficits. Dollar interest rates may rise, affecting borrowers globally. Foreign exchange markets will exhibit greater volatility. For creditor countries, existing investments may lose value.
Illinois court overturns approval of Grain Belt Express transmission line... The Grain Belt Express, a proposed 780-mile high-voltage transmission line intended to deliver wind energy from Kansas to Indiana, has encountered a significant legal setback. An Illinois appellate court recently overturned the state’s approval for the project, casting doubt on its future. The court’s decision was based on the finding that Invenergy, the Chicago-based developer of the project, failed to demonstrate its capability to finance the project, despite being one of the largest private energy developers in the U.S.
This ruling has implications for the eastern half of the transmission line, which was planned to cross Illinois. The decision has intensified discussions in Washington, D.C., about the need for a comprehensive overhaul of energy permitting processes, including those for transmission projects. There is a bipartisan bill in Congress aimed at updating these processes to facilitate such infrastructure projects.
The Grain Belt Express has faced various challenges over the years, including resistance from landowners, particularly in Missouri, where the company has been involved in legal proceedings to acquire land through eminent domain. Despite these challenges, the project had secured significant voluntary easements in Missouri and Kansas, covering about 65% of the route in those states.
The recent court ruling in Illinois adds to the complexity of the project, highlighting the difficulties faced by large-scale transmission projects in navigating regulatory and legal hurdles. The developer, Invenergy, plans to appeal the court’s decision, which could further delay the project’s timeline and increase its costs.
Study: 40% chance the U.S. already is in recession... Economists Pascal Michaillat and Emmanuel Saez have developed a new recession indicator that suggests there is a 40% probability the U.S. is already in a recession, potentially beginning as early as March. This indicator builds on the Sahm rule, which traditionally uses the difference between the three-month moving average of the unemployment rate and the past 12-month low to signal a recession. Michaillat and Saez’s approach enhances this by incorporating job vacancy data alongside unemployment data, creating a two-sided measure.
The new indicator is triggered when there is a significant change in both unemployment and job vacancy rates. Specifically, if the difference in these rates reaches 0.3 percentage points, it suggests a recession may have started, and a difference of 0.8 points confirms a recession. As of July, this indicator showed a difference of 0.5 percentage points, indicating a 40% chance of a recession.
This method offers a more comprehensive view than the traditional Sahm rule by considering both sides of the labor market — unemployment and job vacancies — thereby potentially providing earlier and more accurate recession signals. The authors claim their model can detect recessions more quickly and has a better historical track record, identifying all recessions since 1930, whereas the Sahm rule is only reliable from 1960 onward.