Hello. I’m Paul Yeager. As 2024 winds down, the economic headwinds for the new year have a familiar feel. We will get into economic issues on the farm as well as on Main Street. This program was recorded ahead of Christmas to allow our crew and staff a chance to enjoy the holiday with family and friends. This discussion is with friends of the program and who have deep roots in agriculture. Chad Hart is a professor of agricultural and financial economics at Iowa State University. And Jeff French is founder of AgHedgers.com. To the two of you, welcome.

[Hart] Thank you.

[French] Thank you.

[Yeager] Chad, let's take a temperature check first. We always hear -- let me ask it this way -- we always hear that the rural economy is last in, last out of anything. But it sounds like this time everything I heard on the presidential trail was we're already in it in rural America. Are we in a good, bad or indifferent economic time right now?

[Hart] We're in a rough time right now, especially when you look at not just the rural economy but the ag economy. We have been struggling for the past couple of years as we have watched prices decline, incomes decline. You've seen that ripple up into our ag manufacturing now. And so, we're leading the way down as opposed to following the way down.

[Yeager] Is there anything that prompted that movement?

[Hart] I think it's a combination of factors when you look out here. One thing about it is that when we look at the way our supply and demand balances worked out, we've been able to grow our supplies much quicker than we've been able to grow demand over the past couple of years and that had led to some oversupply issues that are definitely weighing heavily on the market right now. And it's not just a U.S. issue, it's a global issue when it comes to that. Global supplies have been tremendous.

[Yeager] You sound like Jeff French talking about global issues. Is that similar to what your clients are telling you?

[French] Well, yes, the supply this year has been great. We were blessed with very strong yields in most places, not everywhere, but a lot of places that we deal with had record yields for corn and beans. That added to prices downfall, no question about it. But then you look at Brazil coming in right now and combines will be rolling there in the next three to four weeks. And it is kind of the understanding of the futures market, they always put the worst or best case scenario in very quickly. So, right now they're putting in a very strong scenario of big yields down there in Brazil. We're talking 170, 175 million metric tons. If that happens, the bean market is going to have a tough time moving higher here in the future. It's just there's going to be a lot of beans on the global market.

[Yeager] We at least for a lot of '24 had a 1 to start the bean price. Now we're back to that 9. That cannot be causing much cheer this holiday.

[French] No, not at all. It's a loser if you look at current economics for next year planting beans. But if you look at the last ten years, Paul, beans have traded between $8 and $10 in the last ten year about 50% of the time. So, we've been in these scenarios before. The problem now though, this incoming crop is expensive. The inputs have not come down like the commodity prices have come down.

[Yeager] So, Chad, if we have already had 50% of our time in $8 to $9 range and we're already seeing the rural economy not in a good shape, what does that mean what he's saying?

[Hart] Well, it leads to significant challenges. And one of the things we'll be watching for is, as Jeff mentioned, the idea is we haven't seen our input costs come down yet. But they are starting to work their way down. And how does that happen? Well, it tends to come with an ag recession that we have to take this step back, we have to go through some hard times. That forces us to control our cost, figure out how to make this system work again at these lower prices. And so, it does mean some pain in agriculture.

[Yeager] How hard of times are we looking at? Is this reminiscent of another time?

[Hart] Right now I'm going to say it's reminiscent to me of a decade ago when you think back to 2012, 2013, 2014 we basically went through that again in '22, '23, '24 here. And so, if you think about what was happening a decade ago, we went from record high incomes in 2012 down to lower incomes by 2014 and then we stayed down there until 2019. Now hopefully we don't have to go through that long a stretch, but that's the concern is that we have seen the erosion in incomes, that is going to lead to some pressure coming off of those costs. But it's going to take time to rebalance back out again.

[Yeager] How does one prepare for such a scenario like that?

[French] Well, if you talk to the clients that I talk to, it's a struggle to pencil a profit in the beans. And I think you're going to see tremendously less acres if these prices go on in to the spring. And we all know it can change quickly. But if you're looking at current prices for new crop, it would definitely lend to more corn acres. And most people are thinking that we could plant 94, 95 million acres of corn next year, which again in the long run could hurt corn prices. But there's just not a lot of motivation to plant beans right now.

[Yeager] That acreage is going to cost less to buy. The latest Iowa State University land survey said we've already seen a decline in prices. Is that the first indicator of some of that I guess steam being let off the pressure valve?

[Hart] Yeah, I would argue it is the first thing because when you think about it, it has taken that long to chain up to land values. Income started dropping two years ago, now we're seeing that impact on the most valuable asset, the most valuable resource, land. It was a small cut but it showed that yeah, we're starting to take some of that pressure and bring these costs back down in line to match up where prices are at today.

[Yeager] Who wins and who loses with a drop in land values?

[Hart] Well, it's both a blessing and a curse, I'll put it that way. It depends on where you're at within your farming career. For those that have built up that asset base, an established farmer, that land represents my biggest thing within my portfolio, yeah you hate to see that lose value. At the same time, if I'm a young, beginning farmer or a farmer who is looking to expand, you needed this pressure valve to come off to make that expansion possible.

[Yeager] I know that down the hall from you in discussion both literally and physically is always this higher land value, you hear the anecdotes of well this family that is off the farm, they're going to sell. They've been saying that for the last three years. That hasn't changed. So, are we going to see less land being sold now?

[Hart] We've been in a situation where we haven't seen that much land moving for the past several years. In fact, that is part of what has been holding up land values is we're not seeing the sales as we used to historically. And so arguably yeah, as land values sort of hold here, we're not likely to see let's call it big excitement in trying to move that land on because as a land holder, no I want to capture it in a rising market believing I'm going to get more out of it.

[Yeager] Do you have anybody in that scenario?

[French] Well --

[Yeager] I know you yourself have been trying to buy some land.

[French] Well, yeah, for my family situation we don't sell farms. We try to buy more ground as long as we can, the economics. But I think you also have to look at the interest rates. That is something that has been building here for the last 14, 16 months and that is an environment that some of these younger guys have never had to deal with. So, I think the interest rates being higher is definitely affecting these land prices.

[Hart] It's definitely that but it's also the case of yeah, let's face it, find me a farmer who that has ever wanted to sell a piece of ground. The idea is, land is a thing that you continue to buy throughout your farming career and so it's never a time when you're looking at it going, I want to let that piece of ground go.

[Yeager] But there is, again, the anecdotes of those who are buying, who have been buying the land are not the ones, they are the ones who have seen the higher prices and it's not the younger producer. Does this make it even harder for that younger producer to try to buy given what has been happening because a, the interest rate will be higher and b, there might be more bidders because it is at a discount?

[Hart] It is at a discount, but it's also at a discount because we're seeing that potential income from that land has backed off as well. So, like I say, it's both a blessing and a curse. Yes, I'm facing a lower land value to get into the game, but I'm facing a higher interest rate in order to obtain that land as well. And so that is always a balancing act for a beginning farmer. How do I get into the business needing that land? At the same time too, how do I manage my debt because I don't have necessarily the capital to be where I want to be?

[Yeager] Do you get the sense that we are to the point where people are looking to expand? Or are they going to try to ride out two years and just try to sharpen the pencil as best they can before they expand?

[French] Well, I think it comes down to every individual operation. I think if you have the capital and the ability to expand, you're going to take advantage of some of these lower prices. But no, I've heard many stories where they are starting to cut back a little bit. Look at the prices here right now, we're at four to five year low prices, and with land prices $15,000 to $18,000 an acre in some areas, it's hard to make that work. So, moving forward we'll just have to see what happens here.

[Yeager] Chad, you mentioned, I want to go back to something Jeff said about interest rates and historically we're lower than what we saw in the '70s and '80s. That doesn't make anybody feel better when you say historically. But is it helpful that we're not as high as we were?

[Hart] Oh, it's definitely helpful that we're not as high. And you're right, you know, it doesn't help when you've gotten used to very inexpensive money. We spent the last 20 year with interest rates being incredibly low. And we built our farm businesses, in fact, we built all our businesses around the country based upon that inexpensive capital. And so, it is very hard to adjust to even this modest, and I'm going to argue it is modest still, kick up in interest rates because compared to say the '70s and '80s, no we are around what would have been considered average at the time.

[Yeager] I guess I'll ask it like you talked about with the land. Are there winners and losers with a higher or lower interest rate?

[Hart] Definitely. When you think about it, it's this idea that we are, you can divide us into spenders versus savers. And I could argue that during the '80s we were rewarding those savers, those folks that would put away money, get those high interest rates, build that capital up. For the past 20 years, we've been benefiting the spenders, go out there, here's some very inexpensive money, grow those businesses as you look out there. So, there's always this trade off here. I'm reminded of when I first sort of got into economics when I was a child, one of my things I would work on was I'd help my parents with the books because I was pretty good with math. And so, I remember the high interest rates of the early 1980s because I remember their first mortgage, the second mortgage and the third one. And I remember watching the interest rates go from 12 to 15 and the third one would have been 21 if I hadn't been able to hook up my father with his father-in-law because my grandfather had a CD coming due at the time and it just happened to be the same size and we can make a deal at the bank of grandpa for 15% as opposed to the bank at 21%.

[Yeager] And that's, it's funny you say the CD because that was going through my mind. If I'm trying to invest right now, I do need the rate a little higher because I do want to -- and there are people, plenty of boomers who are looking for a little safer off ramp and they do want some of that.

[Hart] And you see the same thing when it comes to cash rents. When you think about who are those folks that farmers are paying those cash rents to, that's often times retired farm families, typically retired farm women, and that is their source of income. So, it's hard to watch that drop as well. So, you've got this trade off happening when we're looking at interest rates or we're looking at cash rents.

[Yeager] Jeff, when we look at issues of '25 and current issues what we're dealing with, we talk about, I think it has been mentioned, supply and demand, we need to eat through some corn and that is with ethanol. Ethanol policy in a new administration has been both for and against ethanol depending on what you ask. Does that cause any ease that there could be some more demand for ethanol or concern that there is more push for drilling oil?

[French] Well, I think it's two-fold. I mean, this incoming administration in the past has been very friendly renewable fuels. With Trump not being up for re-election does that change? We're just going to have to see. But we've seen here in the last USDA, couple of USDA reports, the demand has been awfully strong, on the renewable but also on the exports. They dropped that carryout by 200 million bushels. That was one of the biggest drops that we've seen in a November report in the last ten years. So, the demand, price will bring out demand and corn prices went down to an area where it attracted demand. Now, can we sustain higher prices after here? That March corn has a very strong resistance here at $4.50. We haven't been able to close above it here in six months. Can we get above that? I think we'll have to have some type of weather scenario down in Brazil or Argentina to continue that rally over that $4.50 mark. But I just don't see us going back below $4 right now with what we know.

[Yeager] Do you seen corn as a positive that has been able to hold on and not lose as much as the beans have?

[French] Yeah, beans were down, this week they were down about 55 cents in the first couple of days of the week. Corn held in there until that one day where the spending bill did not pass and it kind of gave up six or seven cents. So, the investment community, the funds, they're long corn, they're looking for higher prices. That has changed drastically. For about the last two years they've been looking for lower prices. So, they're long 150,000 contracts and they're looking for a rally, which is good to see. But we also have a lot of bushels in the bin that we have to move here from winter into spring right now.

[Yeager] Speaking of politics, Chad, does a Farm Bill matter to those who depend on the government for guidance in policy?

[Hart] A Farm Bill matters and it continues to matter and the longer we live without one the more we'll figure out how important it is. But as we're looking here it's part of our portfolio of policies that we have to watch. For now, we're watching to see what happens with year-round E15. That's separate from the Farm Bill debate. We're watching what happens with these tax credits we're looking at on the renewable fuels, 45Q, 45Z. That matters when we're looking at agricultural markets. And I would argue tariffs play into this as well because going back to the discussion Jeff was talking about with corn, you're looking at the two E's as being the big areas where we were seeing growth, exports and ethanol. And right now, you could argue they're both sort of under threat as we look at how government policy might change.

[Yeager] The two E's, I've got to use that, that might be the line -- let's talk about exports and tariffs then. You lived through one of those tariff wars before. You've seen how it can change a market. The very first thing you said was, certain things are already baked in. Are tariffs already baked into this?

[French] Oh, I think absolutely. I mean, could it get worse if they're actually implemented and China goes to Brazil? China is already going to Brazil. So, I don't think that is going to shock the market right now. But yeah, I think it's baked in but it could get worse just depending on how the trade war goes. Who knows, maybe, it could be a whole new administration approach to China. We've seen them reach out and invite them to the inauguration. So, we'll have to see. But the market definitely took it as a negative and tariffs are definitely baked into the downside right now.

[Hart] If I might, I'm worried that we tend to concentrate on China for it and I'm worried about the non-China impacts. I'm more worried about a Mexico, a Canada, what we see with Europe, Japan. As you say, we've sort of baked in, we know China is already moving to Brazil. I worry about these other countries because we're seeing what we went through in a prior term for President Trump was China focused. The discussion this time around seems to be much more broadly defined, global tariffs as opposed to specific tariffs to China, and I think that represents a bigger threat when we're looking at agricultural trade.

[Yeager] The Europe tariffs would be much more on the manufacturing side and impact not as much agriculture, but the Canada and Mexico absolutely would be with our one and two trading partners, right, for agriculture?

[Hart] But I could point to this year's data to say, where are we seeing the biggest gains in export trade right now for ag? And Europe has been a big area, especially in corn. When you look right now, last year we had basically sold them nothing. Our sales are up 5,000% going into the European Union right now. So, while we tend to dismiss Europe as a big trade partner, they still matter as far as swings, especially here when we're trying to rebalance after seeing the ebbs and flows of Chinese trade.

[Yeager] Do you buy into challenges with Mexico can impact only corn and only livestock? Or do you see that as a bigger picture that could happen if something, if our relationship with Mexico is more of a challenge?

[French] You know, it's going to affect, number one, corn and pork the most from the ag side in my opinion. But I feel like the market is not too concerned. I think we have a lot of leverage when it comes to the Canadian and the Mexican side. I don't know if the market is too concerned with that. Obviously if things can change, that can change the price really quick. But I think we have a little bit more leverage when it comes to those two countries compared to when we have China. It makes much more sense for Canada and Mexico to be buying from us than buying from South America, from a pure price standpoint.

[Yeager] Right, which is part of the whole maybe we are going to lose China because Brazil is not giving them any resistance or anything, it might be an easier port, Brazil is building new ports. That just might be where we go. Do you think that the U.S. stands to benefit from everyone else because of that scenario?

[French] I think we need to. I think we need to find new trade partners because China could be less of a demand there, especially on the soybeans. But at the end of the day, they will buy the cheapest bean on the market. That is what they will be focusing on.

[Yeager] Some of your science colleagues at Iowa State I've talked to about bird flu and the impact in the dairy market and we're already seeing the deaths in Iowa and in Minnesota with bird and flocks. And the egg prices were never inflation, it was because we had less layers. What is the big impact of bird flu going to be? And where is it going to be concentrated most in '25, Chad?

[Hart] Well, that’s the deal. If I knew that, would I be in front of you today? But I would agree, as we're looking here, we're seeing another wave hit and it has definitely already had an influence on egg prices. We never got to fully recover. We're going to see another step up in that. We're looking at impacts possibly hitting turkey as well as we look there. But then thinking about how bird flu has been able to spread into other species. We have seen some human cases starting to develop. We really don't know where this is going to continue next, but we do know where it can hit again. And, like I say we're experiencing that now when we look at our flocks across, especially here in the Upper Midwest.

[Yeager] Do you get concerned, though, about when you start to see -- because the bird flu wasn't in California as widespread the last time. It was, it was in the west, there was Oregon, there was Washington cases. But considering California's position as a large dairy producer now, that certainly has to give shudder to new rounds of discussion in this bird flu.

[Hart] It definitely does. Well, but even with the outbreaks in California combined with the outbreaks here in the Upper Midwest you're sitting here going okay, dairy wise California, Wisconsin, heck northwest and northeast Iowa here, we've got it in close proximity, it is a definite problem here, and it's a problem that seemingly just won't go away. We've been dealing with this disease since 2022. We're used to seeing this pop up and then disappear for a while. It's not now.

[Yeager] Those who raise hogs and cows, they have to pay attention to disease too. It always seems to be your hog producers, they're always fighting off disease. There is that concern in reaching into the swine barn. What is your client -- what are they talking to you about their concerns? And how are you advising them of positioning against things like this?

[French] Well, diseases in the last two weeks, that has come up more and more in the last two weeks than it has in the last almost twelve months. There are some concerns there and we've had a tremendous rally in the pork prices here since the middle of August. And we've kind of plateaued up here. We should have a little more availability of hogs here the first quarter of '25. I just look at these hog prices over $100 and I just think at these prices you have a lot more room to the downside than the upside. So, we're just getting our clients to make sure that they have some downside protection at these prices.

[Yeager] The final couple of minutes here, gentlemen. Chad, the livestock producers that you, you'll be on that speaker circuit soon. It seems like you're never off of it, by the way, you're always hearing from people and that's good. What are they telling you as they close the calendar out here?

[Hart] Well, I think for livestock it's a combination of I'm going to look at the hog side and think of it, it's a lot like the crops. We're able to over produce very quickly for the demand that we've got, even though the demand has been very good. When we look at the cattle side, it's more a case of there is the one place where we're short supplies and we're trying to catch up and we can't seem to build back up those supplies because right now we're doing everything we can to feed the market even at these incredibly high prices when it comes to beef at the grocery store.

[Yeager] Are you seeing an expansion, do you see an expansion coming anywhere? Or are we kind of at that top end of the charts?

[French] It's not coming in here in the next six to eight months, it's going to take longer. The demand right now is to feed the pipeline and the pipeline right now is very strong. And why not? With these prices it's awfully hard to not send that heifer or that steer to the feedlot and to hold it back when you're getting $250 to $270 a hundred. It's just incredible prices.

[Yeager] Chad, last statement on the dollar as we close here in 30 seconds. The strong dollar has been tough for agriculture to deal with, but the President-elect really likes a strong dollar. How does that play out?

[Hart] Well, let's face it, we've been facing a strong dollar for a while now and we've been growing exports even despite a strong dollar. But yeah, we're going to face that as we go forward. I like to describe it as the dollar is strong. Why? Because we're the best house in a bad neighborhood. Where else are you going to invest? The dollar seems to be the place that everybody has coalesced around and it makes it tougher for us to compete internationally.

[Yeager] All right, Chad Hart, thank you so much for the time, I appreciate it.

[Hart] Thank you.

[Yeager] Jeff French, good to see you.

[French] Thank you.

[Yeager] All right, thank you very much. And thank you as we are going to pause this Analysis. We will continue our discussion, we're going to look at 2025 in our Market Plus segment. You can find both Analysis and Plus on our website of markettomarket.org. We do have a perfect holiday and New Year gift for you it's an email from Market to Market. Each Monday the Market Insider Newsletter is sent out with behind the scenes information on this program, how we put stories together and exclusive details about our 50th season celebrations. Sign up now at Market to Market.org. Next week, we look back at the biggest stories of the year in rural America. Thank you so much for watching. Have a great week.

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