Economic State of Play

Commodity markets have faced significant declines in 2024. Compared to a year ago, rice prices have fallen by 11%, wheat by 13%, and cotton by 15%. Corn prices have seen a recent recovery and are currently 8% below year ago levels. However, as the Midsouth harvest began, corn prices were 23% below last year. Soybean prices have experienced the largest decline and remain 24% below year ago levels.

Current USDA forecasts indicate the U.S. will produce its second largest soybean crop on record and the third-largest corn crop on top of large carryover stocks from the previous year. An 8% increase in U.S. long-grain rice production this year is forecast to lift ending stocks to the highest levels since the 2020/21 marketing year. Although production estimates have been revised lower in recent months, U.S. cotton production is expected to increase 2.12 million bales over last year and increase ending stocks by 1.15 million bales to 4.3 million. 

The ample harvests in the U.S. have coincided with large South American production and export competition, a strengthening U.S. dollar, political uncertainty over trade policy, interruptions in rail shipments into Mexico, and low water levels on the Mississippi River.

Looking forward, fertilizer prices have moderated from a price peak in March this year. In addition, diesel futures prices are currently 16% below year ago levels. USDA’s latest Cost of Production estimates indicate lower overall production expenses in 2025. However, input costs have not dropped in tandem with crop prices. At current crop price levels, operators on rented land will struggle to profit in the year ahead.

USDA-FSA Distressed Borrower Set-aside Program

On September 25, 2024, the USDA-FSA Farm Loan Program (FLP) implemented a new program to assist financially distressed direct loan borrowers. The Distressed Borrower Set-Aside (DBSA) allows those direct loan borrowers to ‘set-aside’ one loan payment to the end of the loan term if, and only if, they cannot make their regularly scheduled payment. Key takeaways of this program include the borrower accruing significantly reduced interest on their set-aside amount (0.125%) until it is repaid, and the loan receiving a DBSA must be outstanding as of September 25, 2024, meaning the loan must have been closed and/or accepted before September 25. A borrower may request a DBSA at any time.

The application for the set aside includes 1) a written request signed by all parties liable for the debt, 2) production, income, and expense records for current and upcoming seasons and 3) any other supporting documentation showing financial distress and repayment capacity. There are several other eligibility criteria and limitations for this program. Please read more at the link below or contact your local county FSA office for further questions on the DBSA.

Farm Bill Update and Outlook for 2025

As of the writing of this on December 6^th, 2024, we do not have a farm bill. The 2018 farm bill extension expired on September 30^th of this year which means programs that have been authorized for funding through 2024 will not have funding in 2025. In the immediate term, the first program of concern is the Dairy Margin Coverage (DMC) program since milk is harvested daily. If there is no extension of the 2018 farm bill or a new farm bill passed, permanent law authorized in the 1948 farm bill program will replace the DMC program (see Southern Ag Today article). Commodity programs such as Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) will cease to be funded. The Conservation Reserve Program (CRP) will cease to be funded. EQIP and CSP are authorized under the Inflation Reduction Act and enrollment may continue for these programs (USDA-NRCS, 2024).

An extension of the 2018 farm bill is the most likely outcome which would make the second extension of the 2018 farm bill. The first was made on November 19, 2023. The main issue with passing a new piece of legislation is the constraint of time. There are over 1,300 political appointments that require Senate approval, and the average time it takes to complete these confirmations is now 192 days. For perspective, confirmations during the Reagan administration took 69 days.

The Tax Cuts and Jobs Act of 2017 is set to expire on December 31^st of this year which implies higher individual tax rates and lower standard deductions. Since that bill directly impacts households bottom lines, it will be a priority for all members of Congress and will be another factor which stands in the way of a new farm bill. In recent history, a farm bill has not been passed in the first year of any administration, whether new or second term. In fact, since 2000, three farm bills have been passed in the second year of a sitting president’s term: 2002, 2014, and 2018 (see Figure 1). Lastly, while there has been increasing partisan divide on many topics in Washington, D.C., the farm bill seems to one piece of legislation that continues to garner bipartisan support with 55% and 45% of the votes in the affirmative coming from Democrats and Republicans, respectively (see Figure 1).

Figure 1. Percentage of “Aye” Votes on Recent Farm Bills by Political Party (2002-2018)

The Farmer Revenue Assistance Mitigation (FARM) Act, which is set to provide ad hoc assistance to producers due to record low net farm income, is being considered in the lame duck session which ends in the House of Representatives on December 19^th and the Senate on December 20^th (see Congressional Calendar). While this assistance is much needed to keep many farmers afloat, its likelihood of passage will face headwinds due to time constraints and due to other key pieces of legislation which is normally passed this time of year, such as a continuing resolution to fund the government, defense funding, and hurricane disaster relief. While an extension of the 2018 farm bill is necessary to prevent economic catastrophe driven by reverting to permanent law, it does not provide a sufficient safety net. Payments are highly unlikely to trigger, and even if they did, the cash would not be received until a year after harvest is completed which creates cash flow and loan renewal issues. This, paired with the busy agenda for the 119^th Congress next year, creates more urgency to pass an economic disaster relief package now to help farmers, and the FARM Act, or at least some form of it, could be what keeps many farmers farming in 2025.

Update on recent BRICS+ Efforts

The BRICS+ is a formal governmental organization consisting of five core members: Brazil, Russia, India, China, and South Africa, and four countries that have recently joined: Egypt, Ethiopia, Iran, and the United Arab Emirates. This organization aims to develop stronger trade relationships between countries within this agreement and was created following the 2008 financial crisis. BRICS+ seeks to reduce its reliance on the U.S. dollar (USD) in international trade and finance. This process is known as “de-dollarization.” The motivation for doing this is political (e.g., U.S. relationship with China and Russia) and risk-mitigating. BRICS+ aims to mitigate the vulnerabilities associated with dollar dependence, such as exposure to U.S. monetary policy shifts and potential sanctions – like the current U.S. sanctions on Russia following the invasion of Ukraine.

The key areas of their “de-dollarization” efforts are in the form of 1) foreign exchange (FX) reserves, 2) local currency-denominated trade, and 3) decreasing the dollar’s role in international debt securities (e.g., debt instruments that are paid in USD). BRICS countries collectively hold ~42% of global central bank FX reserves (this essentially means they hold 42% of developed countries' currency in reserves, most of which is USD). From this perspective, the BRICS countries are creating a scarcity of USD in the market, forcing a strong dollar value that hinders the U.S.’s ability to compete in global trade. These countries are diversifying their FX reserves by increasing holdings of assets like gold and reducing the proportion held in USD. Another avenue currently being explored is the “mBridge Project.” This effort aims to develop a real-time, cross-border transaction platform using central bank digital currencies. If successful, this move will enhance transaction efficiency and reduce the dependence on USD.

However, there are significant challenges and limitations to the efforts of BRICS+ countries. Despite their significant share of FX reserves, the nations have a much smaller footprint in international financial markets compared to the U.S, which reduces the potential global impact of their efforts. Secondly, the BRICS countries are economically diverse and often have different political interests. This makes their coordinated effort a challenge since China and Russia will likely act in their own self-interest rather than for a common goal in the long run. Third, the discussion about creating a common BRICS+ currency (mBridge Project) warrants long-term concern. However, any formally created currency would take years to establish the same trust, stability, and global mechanism comparable to the USD. Overall, BRICS+ countries are still actively pursuing strategies to lessen their dependence on USD. While these recent efforts signify a move of de-dollarization, the global dominance of the USD will outweigh any short-term efforts. This suggests any significant shift will be gradual.

References

https://www.fsa.usda.gov/sites/default/files/documents/fact_sheet-distressed_borrower_set_aside_program.pdf

https://think.ing.com/articles/de-dollarisation-more-brics-in-the-wall/#a1

https://commonslibrary.parliament.uk/research-briefings/cbp-10136/#:~:text=Advocating%20for%20global%20governance%20reform,the%20World%20Bank%20and%20IMF.

https://www.cfr.org/backgrounder/what-brics-group-and-why-it-expanding

*SOURCE: Peanut Prices, Runner-type, USDA, National Agricultural Statistics Service, December 5,2024.

Mississippi River Level at Memphis, TN

(as of December 5, 2024)

SOURCE: NOAA National Water Prediction Service

NOAA 7-Day Weather Forecast

(as of 12/5/2024)

SOURCE: NOAA National Weather Service Weather Prediction Center