As we step into 2025, the agricultural sector is bracing for significant uncertainties. Matt Erickson, Terrain Analyst, provides a comprehensive overview of the challenges and opportunities ahead. With a new Congress and President Trump taking office, Erickson emphasizes the interplay between policy and the macro economy, with a particular focus on inflation and interest rates.
Economic Overview
The U.S. economy entered 2025 in a strong position. The economy grew between 2% and 3% in 2024, much due to the resiliency of consumers.
A strong labor market and wage growth have bolstered consumer spending power. Unemployment in 2024 was low at 4.1% and wage growth, year-over-year, was about 4%, exceeding pre-COVID levels and current inflation rates.
Going forward, the interplay between wage growth and inflation will be crucial. The Federal Reserve remains focused on inflationary pressures, and immigration and tariffs policies from the White House could add to economic uncertainty.
Policy Impacts
Erickson challenges listeners to consider how current policy priorities could impact key areas that matter to agriculture, including the Farm Bill and corn and soybean outlooks.
Staying informed and adapting to changing conditions will be key to navigating the uncertainties of 2025. For example, tariffs on Mexico, a significant importer of U.S. corn, soybeans and pork, would be cause for concern, while targeted tariffs on China’s processed oils could benefit the U.S. soybean industry.
Risk Management
With so many unknowns, it will be important to focus on what is known and centralize risk management. Enhanced coverage options with higher subsidies offer opportunities, and strong working capital will be vital for withstanding adversity.
Regular communication with risk management advisors and financial officers also is part of an effective risk management plan. Be proactive in addressing uncertainties and opportunities.
Financial Management
Ensuring that new or existing debt aligns with the current interest rate environment also is critical. Farmers should focus on debt structure and tolerance to navigate the financial landscape effectively.
Spend time stress testing cash flows. Consider different price scenarios for commodities and production costs to make informed decisions.
