High Interest Rates, Strong U.S. Dollar Take a Toll on Ag Economy

    Findings from CoBank's new quarterly report provides updates on the U.S. economy and agricultural markets. (Lindsey Pound)

    According to a new quarterly report from CoBank’s Knowledge Exchange, the combination of the highest interest rate environment since 2007 and a strong U.S. dollar is beginning to take a disproportionate toll on rural industries such as agriculture, forest products, mining and manufacturing.

    “The challenge for agriculture and other rural industries that rely heavily on global markets is their export partners simply can’t afford to buy U.S. products,” said Rob Fox, director of CoBank’s Knowledge Exchange, in the company’s press release. “When you combine the loss of exports with a general slowdown in the U.S. economy, it’s a double whammy for many businesses operating in rural America.”

    Key Takeaways from the Report

    Macroeconomic Outlook

    • Fed officials now expect interest rates to stay higher for longer.
    • As the U.S. economy outperforms expectations, countries such as Europe and China have fallen short – resulting in the strong U.S. dollar. This makes U.S. exports more expensive and imports cheaper, heavily impacting the rural economy.


    Grains, Farm Supply & Biofuels:

    • Historically low water levels on the Mississippi River, higher barge rates, a strong U.S. dollar and robust export competition from Brazil and Russia are creating major headwinds for the U.S. grain and oilseed export program.
    • Acreage for winter wheat planting is expected to be down slightly with prices below expected breakeven costs of production.
    • Anhydrous ammonia and potash prices fell 30% and 15%, respectively, during the third quarter. Less fertilizer usage is expected in 2024 as acres shift from corn to soybeans.
    • Ending stocks have tightened and are now 17% below the March 2023 peak.
    • Renewable diesel and other biofuel capacity is up 26% since January 2023.

    Animal Protein and Dairy

    • USDA estimates total U.S. beef output will be down 5% in 2023 and expects an additional 7% decline in 2024.
    • Pork cutout values increased 41% from May through July, countering weak prices earlier in the year. Hog prices also rallied, with nearby hog futures climbing 36% from late May through early August. With production rising and seasonal interest fading, markets have since cooled.
    • Strong cheese production and slowing dairy exports pulled Class III milk prices down to $13.77 per cwt. However, futures markets indicate the final quarter of the year could be much better, with projected Class III milk prices at $17.30 per cwt.


    Cotton and Sugar

    • Cotton production was hindered by ongoing drought and USDA is expecting a year-over-year drop of 9.2%, bringing the lowest level in 10 years. Heading into the fourth quarter, outstanding export sales of all U.S. upland cotton were down 23% year-over-year.
    • Drought was also an issue for sugarcane producers in Louisiana and Texas. Yields in the region are expected to fall to the lowest level in 16 years, but sugarcane harvest is expected to climb as key growing states have benefitted from ideal conditions.


    Specialty Crops

    • Monthly fruit imports have recently declined but are positive in the longer term.
    • U.S. fruit and vegetable exports are growing in dollar terms.
    • Orange production may shift north as disease threatens Florida options.
    • Fresh potato usage has slipped, and shifting more into frozen.


    • U.S. crude oil prices increased 30% in the third quarter, with WTI futures rising from $71 at the start of July to $95 by the end of September.
    • High prices are marked by an important re-ordering in global supply, intransigent producers and a global economy that simply won’t slow down.
    • Without greater demand side destruction, transportation costs are likely to remain elevated through 2024.

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