Economic uncertainty sharpens the need for a plan
February 4, 2025
Farmers need to plan for uncertainty. Ag economic and policy adviser Matt Erickson with Farm Credit Services of America made that point during a presentation at South Dakota AgOutlook last December. Regarding interest rates, inflation, and tariffs, Erickson told the South Dakota Soybean Network the way forward and beyond uncertainty is becoming more defined, but on the other hand, not so much.
“All that has an impact on agriculture,” said Erickson. “My full outlook here for 2025 is I fully believe this intersection on macroeconomic policy and its impact to the agricultural economy, I think, is going to have to be monitored here when we go through this year in 2025.”
In an interview before tariffs were announced by the Trump Administration on February 1st, Erickson posed questions that have a bearing on those tariffs’ impacts.
“What commodities could be impacted, first and foremost? Does the president issue these tariffs? Does he make these broad-based, are they targeted tariffs,” said Erickson. “And then third, is if he does issue these tariffs, is there any retaliation too from the country that these tariffs are placed on?”
The U.S. agriculture economy will feel the effects of inflation, which has been stable lately but is higher than the Federal Reserve Board wants core inflation to be. Last fall the market indicated a 150-point drop in interest rates, but according to Erickson, tariffs and immigration issues have pared that figure back despite other encouraging economic indicators.
“The U.S. economy remains robust, it remains resilient. We’re still over three percent GDP, with regard to the U.S. economy. The labor market’s still relatively strong,” said Erickson. “The fact of the matter is right now, from what the fed has provided us comments on, they’re really not in any hurry to reduce rates.”
Considering the volatility in the current agricultural economy, said Erickson, farmers need to ask themselves a fundamental question.
“What does your bottom line look like? What price do you have to get in the marketplace in order for you to break even? So again, it’s taking that cash flow projection and basically taking one step further to really understand what your numbers are in terms of the price that you need for your bottom line,” he said. “And then react to it when the market tells you to.”