The U.S. agricultural sector is navigating a turbulent landscape as farm incomes decline from their 2022 peaks, while production costs remain elevated. High lending rates have further constrained farmers’ ability to expand, and abundant crop yields are expected to suppress prices well into 2025. Additionally, proposed shifts in immigration and trade policies under the incoming administration could amplify these challenges, potentially disadvantaging American farmers against international competitors.
A Look Back: The Decline in Farm Income
The U.S. Department of Agriculture (USDA) revised its 2024 net farm income estimate in December, reporting a drop to $140.7 billion—a 4.1% decline from 2023 and a staggering 23% reduction from 2022’s record high. This steep downturn has been driven by a combination of (falling crop prices) and persistently high production costs.
The crop sector, particularly growers of corn and soybeans, has been hit hard. Oversupply, a strong U.S. dollar, and intensified foreign competition have pushed prices lower. The USDA estimates that corn and soybean receipts fell by 21% and 12%, respectively, in 2024, with cotton receipts plummeting by 27%. On the other hand, the livestock sector showed resilience, benefiting from increased receipts for cattle, milk, and eggs. Livestock receipts are projected to grow by 8% in 2024, offering a modest buffer to the broader agricultural downturn.
2025: More of the Same?
The challenges faced in 2024 are unlikely to subside in 2025. Key crops such as soybeans, corn, wheat, and cotton are expected to yield above-average harvests, further saturating the market. The (USDA) predicts that demand for these crops will fall short of supply, keeping prices low.
Credit conditions within the farm economy are also deteriorating. Farmers are increasingly struggling to repay loans, as evidenced by the Federal Reserve’s Agricultural Credit Surveys. Although real estate values—often used as collateral for farm loans—have supported farm equity in recent years, their growth is beginning to moderate. Farm debt-to-asset ratios remain stable but are expected to decline further in 2025, raising concerns about long-term solvency.
Immigration and Trade: Critical Policy Crossroads
U.S. agriculture heavily depends on immigrant labor, with nearly half of all crop workers lacking legal status. Policies that restrict immigration or increase deportations could significantly disrupt labor availability, raising costs as farmers struggle to find domestic replacements. Additionally, industries like dairy, which cannot utilize the H-2A Temporary Agricultural Worker program, are particularly vulnerable to labor shortages.
Trade policies pose an equally significant risk. The U.S. is a leading agricultural exporter, with exports accounting for over one-third of total agricultural production. Any escalation in trade conflicts, particularly with key partners like China, could severely impact U.S. farmers. Retaliatory tariffs on agricultural products during past trade disputes led to billions in losses, and similar measures could devastate exports again.
The Long-Term Outlook
While some U.S. farmers have successfully explored alternative markets, such as Mexico, these efforts may be undermined by potential retaliatory tariffs tied to the administration’s trade stance. Prolonged disruptions could lead trading partners to permanently pivot to other suppliers, diminishing U.S. farmers’ global competitiveness.
Midwestern states like Iowa, Illinois, and Minnesota, which rely heavily on agricultural exports, are especially vulnerable. These regions produce key commodities such as soybeans, corn, and pork, and disruptions to trade networks could significantly impact their economies.
A Mixed Picture for Livestock
Lower crop prices may benefit livestock producers by reducing feed costs. However, these short-term gains could be offset by broader supply-side adjustments and economic pressures. Although livestock prices surged in 2024 due to supply constraints and strong demand, these conditions are unlikely to persist as the market stabilizes.
Conclusion
The U.S. farm economy is under mounting pressure, with declining incomes, elevated expenses, and significant policy uncertainties. Trade and (immigration) policies will play a pivotal role in shaping the agricultural sector’s trajectory. Without careful consideration of these factors, American farmers risk losing access to key markets and labor sources, potentially ceding their competitive edge to global rivals.
