Top Ag Topics to Watch Going into Fall

This summer’s AgViews Live touched on many important issues facing agriculture today. Here are some of the top takeaways from this year’s events that are worth watching as we move into fall.

Farmland Trends and Land Values

Land values have likely peaked, but there will still be some high outlier sales. Additionally, values seem to be becoming a bit more regionalized. There’s going to be a huge intergenerational transfer of wealth, including farmland, in the next couple of decades – some reports estimate around $70 trillion to $80 trillion of wealth will be transferred, with around $4 trillion of that total being farmland. As a result, there will likely be an increased supply of land coming on the market in the next few years. That, combined with a more challenging farm economy and higher interest rates, may keep the lid on rising land values.

Strong Headwinds in the Ag Economy – Particularly in the Grain Sector

As previously noted, the farm sector is currently in a strong financial position after a number of profitable years. That said, there’s potentially a reason for concern on the horizon. While there’s a lot of horsepower (net worth) in the ag sector, you still need fuel (cash flow and profits) to make the engine run. The latter may be harder to come by over the next few years.

Commodity prices that are below most producers’ breakeven points, a slowing demand for commodities, higher interest rates, and expenses that aren’t declining all contribute to margin compression. Interestingly, it seemed that at all three AgViews Live events, bankers were perhaps more concerned than producers about current headwinds. This is probably not surprising given that producers are in their busiest time of the year and are locked into taking care of crop production details, but the economic realities will ultimately need to be addressed.

Other things to note when it comes to these headwinds: It’s important to watch your leverage with higher rates, especially with carryover debt and potential refinances. Also, keep an eye on softening machinery and equipment values. For the younger generation, paying attention to the changing economic landscape will be key. Many younger producers have not yet experienced really bad years in their farming careers.

The Importance of Working Capital or Liquidity

If you have working capital or liquidity, how do you maintain it? If you don’t, do you have a plan to replenish it? One can’t overemphasize the value and importance of managing this area. Businesses don’t usually fail because they go broke or are insolvent – they fail because they run out of cash (working capital/liquidity) and lose the ability to meet short-term obligations.

Long-Term Effects of Consolidation

We’re seeing more and more consolidation in the world of ag producers and agribusinesses. While the long-term impact of this trend remains to be seen, the increase of larger companies and economies of scale may mean a loss of creativity and innovation. This can open the door for small businesses and entrepreneurs, who may have an opportunity to disrupt trends because they don’t have to deal with the same limitations and layers of bureaucracy.

Farm Bill/Political Front

There isn’t a real consensus on when a new farm bill will be passed – or what will change once it is passed. There seems to be a limited opportunity for additional funding for new programs. The number one priority will be to protect crop and livestock insurance programs and the safety net they provide.

Watch for developments related to the recent Supreme Court ruling reversing the Chevron Doctrine as it relates to future regulations in agriculture and who has the power to enforce them.

With respect to the outcome of the upcoming U.S. elections, compromise and bipartisan agreement may continue to be difficult to find, making any meaningful legislation hard to come by.

Speaking of politics, 50 percent of the world’s population is holding elections in 2024, and the results could have a meaningful impact on the world of agriculture in the years to come.

Global Considerations

As I’ve touched on before, what happens in China and Brazil continues to be worth watching. China is dealing with demographic and economic issues that have ramifications for the U.S., while Brazil’s agricultural economy is becoming more and more competitive on the world stage. As Brazil builds out its infrastructure and moves more farmland into production, we’ll be seeing some strong competition from the southern hemisphere.

Record Deficits

Record deficits in the U.S. and around the world – and the interest costs of those deficits – will eventually need to be dealt with. The current paths are simply not viable in the long term. Also, keep an eye on increasing credit card debt ($1.3 trillion and growing) along with delinquencies in credit card and other consumer debt. The philosophy of ignoring these unsustainable trends with the attitude that “the government will take care of me” may be short-sighted.

Weather/Stress

As I mentioned in our last newsletter, the wet spring in many areas was a good reminder that Mother Nature is still very much in charge. Because of lower commodity prices, producers need bushels to offset lower prices. With economic headwinds, higher stress levels can be an unfortunate byproduct. Don’t lose sight of the fact that farming and ranching are still terrific businesses to be in and great places to raise a family. We just need to remember to manage stress levels and focus on what we can control.

Livestock

It’s a great time to be in most parts of the cattle business. The outlook continues to be largely favorable, with strong demand for beef and relatively tight supply. Furthermore, the industry doesn’t seem to be in any hurry to rebuild the cow herd, which should be advantageous for longer-term prices – especially for cow/calf producers. Consumer preferences, stress of the general economy, biosecurity and other macroeconomic factors could contribute to some moderate headwinds.

This article appeared in the Q3 2024 issue of Bell’s AgViews newsletter.