The U.S. economy continues to perform reasonably well by most
metrics, but the red-hot labor market of the last two years is
finally cooling off. The unemployment rate edged up to just above
4% in June and has risen 0.7% since January 2023. While an increase
in the unemployment rate of 0.5% over a one-year period has
historically triggered a recession, the recent uptick is highly
unlikely to produce a similar result. It is more reflective of the
labor market retuning to its historical norms following a period of
extreme tightness.
According to a new quarterly report from CoBank’s Knowledge
Exchange, the potential for a workforce shortage looms as a much
larger, long-term problem for the U.S. economy. Shifting views on
immigration combined with an aging U.S. population and falling
birth rates could lead to a declining and ultimately insufficient
labor supply.
“Due to the sharp decline in U.S. birth rates since the global
financial crisis, we are poised to enter a long, potentially
permanent period in which the number of retirees will outpace the
number of native-born workers entering the labor force,”
said Rob Fox, director of CoBank’s Knowledge Exchange. “And
the declining supply of workers will drive wages higher causing
inflation and hurting our overall global competitiveness.”
Recent national polling shows that immigration has surpassed the
economy as the most important issue for voters and public sentiment
is shifting toward stricter immigration policy. A set of more
moderate federal policies that allows for a steady flow of legal
immigration will likely be the only way to maintain a stable labor
force, but the current bitterly divided political environment may
prevent that outcome.
More immediately concerning for the U.S. economy is the
steady decline in new job growth. Monthly job openings have dropped
by more than one-third since mid-2022. Employers have not stopped
hiring, but they are beginning to take a more cautious approach.
Any further weakening in labor demand could trigger an additional
slowdown in hiring and economic growth.
The agricultural sector continues to face economic headwinds.
Increased crop acreage in the U.S. and rising production in South
America have pulled grain and oilseed prices lower. Elevated
farming costs are also contributing to sharply lower row crop
profitability. Livestock producers will fare relatively better, but
also face headwinds from the strong U.S. dollar and increasing
trade challenges.
Grains, Farm Supply & Biofuels
The USDA recently reported higher-than-expected totals on corn
acreage and stocks, which should provide a buffer against any
losses from recent flooding in key growing regions. Corn prices
ended the quarter 11.5% lower. Soybean crush continues to reach
record highs, but record imports of canola, tallow and used cooking
oil have softened soybean oil prices and weakened crush margins.
The U.S. wheat harvest is moving at a fast clip with farmers
reporting much better yields than last year’s crop.
Farmers entered the 2024 growing season with higher financing
needs to cover elevated input costs. In June, USDA forecasted crop
production costs would remain relatively stable through 2025, while
crop prices have dropped considerably since 2022. Sustained high
fertilizer prices amid lower new crop values may push some farmers
to delay fall applications and additional purchases.
Lower corn and natural gas prices have helped boost ethanol
production margins. Domestic ethanol demand has tracked lower in
recent months, in tandem with flagging gasoline demand. However,
export channels offer promising demand for U.S. ethanol with Canada
emerging as the top new market.
Animal Protein & Dairy
As expected, U.S. beef production is in decline for the year.
But it is not falling as fast as once projected. Cattle spent extra
days on feed during the second quarter, resulting in carcass
weights averaging 10 pounds heavier than Q1. Profits in the value
chain have transitioned away from beef to cattle, softening packer
margins and boosting revenues for producers and feedlots.
Soft feed prices and firm hog values have bolstered
profitability among pork producers. Improved processor demand and
strong wholesale cutout prices led to a prolonged stretch of
elevated hog prices. An uptick in consumer demand for value-based
protein appears to be supporting retail pork sales. U.S. pork
exports comprised 31% of all pork produced during the first four
months of 2024, a record high.
Chicken continues to be the default protein choice for consumers
seeking nutrition, convenience and value. The U.S. broiler industry
is hitting those marks in stride with consumer-friendly prices and
innovative new offerings designed for quick and easy meal
preparation. Broiler integrator margins are improving as markets
heat up and input prices fall.
U.S. milk production fell for the 11th straight month in May.
However, combined butterfat and protein production posted steady
gains over the same 11-month period. Low cheese prices on the spot
CME market boosted international sales. U.S. cheese exports
exceeded 100 million pounds in March, a record high for one month,
and then again in April and May. Highly Pathogenic Avian Influenza
continues to affect cows in at least a dozen states. Until a
vaccine reaches the market, the dairy industry is facing lower milk
output from affected herds.
Cotton, Rice & Sugar
Cotton prices tumbled 22% last quarter as U.S. farmers expanded
acreage in response to the early year price rally. This fall’s
cotton prices are now expected to be below the cost of production
for many U.S. farmers. The export outlook for U.S. cotton is also
dimming amid a slowdown in Chinese demand. Global cotton stocks for
the 2024-25 marketing year are projected to be the highest in five
years as production expands faster than mill use.
Floods in Brazil’s top rice-producing state caused widespread
crop damage across the region, driving Brazilian and U.S. prices
higher last quarter. U.S. rough rice prices climbed 6.1%. The quick
rise in Brazilian rice prices has made U.S. rice more competitive
on the global market and lifted the outlook for exports. A
continuation of India’s ban on rice exports will also benefit U.S
exports.
World sugar prices continued to slide lower last quarter,
falling 13.9% due to improved harvest prospects in Brazil. However,
tight global supplies should limit any further erosion in prices.
USDA is expecting 2024-25 global sugar ending stocks to be the
lowest in 13 years as worldwide demand continues to accelerate.
Food & Beverage
U.S. consumers are taking more pronounced steps to stretch their
food dollars in response to persistently higher prices. Those steps
include forgoing restaurants in favor of at-home dining, trading
down to private label brands and capitalizing on promotional
discounts. Faced with eroding volume sales, retail food and
beverage brands are pruning prices, increasing promotions and in
some cases, trimming their product portfolios. Meanwhile,
restaurants are rolling out a flurry of new value-oriented
offerings, a trend not limited to quick service options. The battle
for sales recovery will demand a price-conscious approach.
Power, Water & Communications
The tendency toward hotter summers has far-ranging implications
for an electric grid that was engineered at a time of milder
weather. But recent assessments from NERC and ERCOT suggest the
breakneck development of solar solutions appears to be fortifying
summertime resiliency. Grid operators, state regulatory agencies
and utilities are also finding that price-based demand response
programs can be used to effectively manage loads and mitigate the
risk of summer blackouts.
Recent merger and acquisition activity in the digital
infrastructure market represents a shift in strategy, with some
operators shedding non-fiber assets and doubling down on fiber.
Fiber to the premise remains a very attractive business given its
rich margins and growth trajectory. Competition is expected to
intensify due to the favorable conditions and large operators like
T-Mobile entering the market. The race to build fiber networks in
underserved and unserved markets is in full swing.
Read The Quarterly. Each CoBank Quarterly provides updates and
an outlook for the Macro Economy and U.S. Agricultural Markets;
Grains, Biofuels and Farm Supply; Animal Protein; Dairy; Cotton and
Rice; Specialty Crops; Food & Beverage industries and Rural
Infrastructure.
About CoBank
CoBank is a cooperative bank serving vital industries across
rural America. The bank provides loans, leases, export financing
and other financial services to agribusinesses and rural power,
water and communications providers in all 50 states. The bank also
provides wholesale loans and other financial services to affiliated
Farm Credit associations serving more than 77,000 farmers, ranchers
and other rural borrowers in 23 states around the country.
CoBank is a member of the Farm Credit System, a nationwide
network of banks and retail lending associations chartered to
support the borrowing needs of U.S. agriculture, rural
infrastructure and rural communities. Headquartered outside Denver,
Colorado, CoBank serves customers from regional banking centers
across the U.S. and also maintains an international representative
office in Singapore.
Corporate Communications
CoBank
800-542-8072
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