Inflation struggles continue to batter farmers and ranchers and consumers alike. In CoBank’s latest Quarterly report, the bank reports that it expects the Fed to wait until at least June before cutting interest rates.
“Inflation is proving to be more difficult to tamp down than expected,” said Rob Fox, director of CoBank’s Knowledge Exchange. “But the Fed doesn’t want to crash land the economy after avoiding a recession for this long.”
Fox continued Fed officials reiterated in March that three rate cuts totaling 75 basis points are still likely this year, even amid an increase in inflation measures in the first quarter. This is a decline from the 2023 expectations of six or seven rate cuts this year to fight an impending recession—today, the idea of a recession is largely dismissed, Fox said.
At their latest meeting in March, Fed officials’ forecasts showed rate expectation slightly higher in the future, and long-term rates moving higher for the first time in over five years from 2.5% to 2.6%. Out of the 19 Fed officials, seven officials expect rates to be 3% or higher in the long run.
“So, while the Fed is assuring rate cuts this year, it appears to be admitting the inflation situation will likely take longer to subside than earlier hoped for,” Fox noted.
Challenges
Farm incomes have been in their highest three-year streak in history, but the coming year will be difficult for row crop producers, the bank said, due to ample domestic supplies and the strong U.S. dollar. In addition, farmers are projected to lose global market share as a result of policymakers forgoing international trade agreements.
The bank calls Congress “one of the least productive in history,” with members enacting less than 50 bills so far, the fewest bills of any Congress on record. In addition, Congress has failed to move forward a new farm bill, with neither chambers’ ag committees releasing text to reauthorize the bill.
Republicans are concerned with spending levels, and Democrats refuse to budge on cuts to the Supplemental Nutrition Assistance Program or the Inflation Reduction Act conservation spending, leading to a partisan standoff.
“In the short term, further Congressional inaction seems a safe bet,” CoBank said.
Beef
Tight labor supplies, high feed costs and rising interest rates have made it difficult for ranchers to make a profit over the past two years. Feed costs are one of the highest components of total production costs, and ranchers are expected to see some price relief. Feed costs are already down about 25% year over year, the bank said.
Although beef is experiencing record-high prices at retail and restaurants, demand remains high. Pork and poultry are expected to see lower prices for consumers, while beef prices are forecast to remain sky high. Retail beef prices hit new records to start 2024, with January and February averaging an 8% increase year over year, according to CoBank.
The question now, Earnest said, is will consumers begin to balk at high-priced beef and seek out cheaper options? Lean beef trim values are up more than 30% from the beginning of the year. Lean beef imports are expected to increase, and the U.S. beef trade deficit is forecast to widen.
“Tighter domestic cattle supplies, combined with foreign exchange headwinds in Japan and economic uncertainty in China, suggest the U.S. will rely more heavily on Mexico—already the top export destination for U.S. meat and poultry,” wrote Brian Earnest, CoBank lead economist for animal protein.
Only time will tell if strong consumer demand keeps U.S. beef on the consumer’s plate amid sky-high prices and dwindling herd inventories. — Anna Miller, WLJ managing editor
