IN THE KNOW
AG UPDATE
DECEMBER 12, 2024 | AG BANKING
The Fed will meet for the final time in 2024 on December 19th and 20th. Current expectations are for a 25 bps decrease. The CME Fed watch shows (as of 12-5-24) a 70% chance of a decline with a 30% chance of remaining the same. The most recent Core PCE inflation came in at 2.8% (October numbers reported at the end of November). This was inline with most forecasts and was 0.1% above the prior measure but below the Core PCE history of 3.0% per year. This measure of inflation seems to show a leveling off, if not a very slight increase. Investors do not appear to be too concerned with this increase.
Most market participants seem to have shifted focus to jobs numbers. With the November jobs report will be released soon, expectations are for the unemployment rate to hold steady at 4.1%. Wall Street expects a jobs gain of 215,000 up from 12,000 the prior month (12,000 in October was the lowest gain since 2020). Most of the expected gains in jobs are due to the rebound from hurricane Helene. If the jobs report is drastically under expectations it will likely cause a bit of market disruption. Increasing unemployment combined with inflation maintaining levels above the 2% target would be worst case scenario for the Feds.
As 2024 comes to a close, many producers will be taking a look at the performance of their farm from both a yield and a financial perspective. Regardless of how 2024 unfolded, attention will soon need to turn to next year, and what can be done to improve operations for 2025. One element that can often improve farm performance, and also relieve some stress throughout the year, is to create a commodity marketing plan. According to Mike Wilson and Ben Potter of Farm Futures, a successful marketing plan consists of 4 steps:
- 1) Establish Goals: What are your marketing and production costs? What is your debt load? Do you have certain capital expense goals for the year? What are your break-even costs and what margin do you need to make your operation successful?
- 2) Activate Tools: There are a multitude of marketing tools available in today’s marketplace: futures, options, forward contracts and hedge-to-arrive contracts, to name a few of the most used. Consider the costs of each type of tool as well as what risks each tool would mitigate, and which risks they would not. You may also want to consider how your crop insurance plan would interact or compliment the marketing tools that you use. Certain tools may cost more, but considering what risks it could eliminate, it could very much be worth the cost.
- 3) Review Processes: Take a look at how you have done your marketing in the past. What was the timing of your decisions? Were there certain decisions made that you wish you would have done differently, and if so, what could you have done instead? Would you use a different marketing tool? Target a different seasonality? Utilize storage in a different way?
- 4) Get Feedback: Consult with a trusted friend, family member or business associate who could potentially challenge your decisions and hold you accountable. Ideally, your feedback would come from someone who would be a great resource and not just an echo chamber for your own ideas.
As of December 4th:
- • Corn DEC $4.22
- Bull: Cheap US corn is stimulating demand. How will the path of interest rates affect the US dollar and the relative price of US corn?
- Bear: Uncertainty about the role of ethanol within the energy policy of the upcoming administration.
- • Soybeans JAN $9.84
- Bull: Exports ahead so far by 13.4% versus last year.
- Bear: Trade with China (or lack thereof) and the direction of biofuels usage. Beneficial rain/weather in South America.
- • KC Wheat DEC $5.27
- Bull: Russian and Australian weather and crop conditions continue to deteriorate.
- Bear: Recent moisture in western wheat production areas.
- • Livestock
- Feeders JAN $257
- Live Cattle DEC $188
- Lean hogs DEC $82
- • The statutory loan limits for FSA guaranteed loans has increased to $2,251,000.
- • The Farm Bill Extension expired on September 30, 2024. Continuing Resolution (CR) for FY2025 is through December 20, 2024.
- • 2025 FSA Farm and Ranch Planning prices have been set. See NE Exhibit 2 (Subpar. 242 A). A few to note:
- Wheat: $5.75/bu
- Yellow Corn: $4.30/bu
- Soybeans: $10.40/bu
- Cattle showed slight increase from last year.
Source: U.S. Department of Agriculture,
Look at these fall / winter learning and networking opportunities!
- • COLORADO AG SHOW - GREELEY, CO January 28th - 30th
- • 33RD ANNUAL BUFFALO BILL FARM & RANCH SHOW - NORTH PLATTE, NE February 7th - 8th
The Federal Reserve Bank of Kansas City released their agriculture conditions December 2024 report. This report is based on responses from ag lenders in the 10th District and lender perception is credit conditions will continue to tighten. While yields have varied over AB&Ts footprint, all of our customers have suffered from low crop prices. The following table shows lenders’ perception of loan repayment rates by operation type.
Numbers below 100 on the index reflect the degree to which lenders feel the likelihood of repayment has “lowered” from one year ago. Not surprisingly, lenders are concerned with repayment rates with exception to cow/calf and feedlot operations where high prices linger.
One takeaway? Lenders must, more than ever, work with producers to ensure an optimal loan structure and further develop a strong and honest working relationship. The demand for attention and effort from other key supporters of the ag producer is no less.
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