Economic Headwinds and Next Steps

While inherent to agriculture, uncertainty always comes with a unique set of risks that require a fresh look at an operation’s financial position and strategies. But the fundamentals of good planning never change. This includes right-sizing crop insurance to your risks and needs, selling commodities as price opportunities present themselves and leaning on your team of advisors.

Staying informed in a rapidly changing and evolving 2025 also will be essential. Here, our economist Matt Erickson provides an overview of the headwinds shaping volatility and uncertainty as we enter a new production season. We also outline the steps you can take, working with your lending and crop insurance team, to prepare for the year ahead.

Below-Average Prices, Above-Average Costs

U.S. crop producers have experienced significant margin compression in the past year, and crop prices are expected to remain depressed in 2025. USDA projects the average farm-gate corn price to drop $0.15 per bushel from an average of $4.35 for marketing year 2024-25 to $4.20 for 2025/26. Soybeans are expected to drop $0.10 per bushel to $10 per bushel for 2025-26. If realized, both commodities would be below their 10-year-average farm price -- $4.35 per bushel for corn and $10.56 for soybeans. Price is one side of the story.

The other: Producers continue to deal with ‘sticky’ costs. Cash rents are impacting balance sheets. USDA reports prices for all machinery have risen 13% since early 2022, when the Federal Reserve raised rates for the first time to combat inflation.  Production inputs, interest costs, taxes, wage rates, family living – producers have seen little to no relief.

As Figure 1 shows, prices for crop inputs paid by U.S. producers remain 37% higher than 2011 levels, while U.S. crop prices received by producers are 7.3% below 2011 levels. That’s a recipe for a tight and negative margin environment.

On an inflation-adjusted basis, farms specializing in corn and soybeans could see their lowest average net cash farm income position since 2010, when USDA began collecting the data (Figures 2 and 3). This is significant because net cash farm income provides a snapshot of cash available for debt payments, taxes, living expenses and investments.

Brazil: Global Competition Heats Up

Soybean production from the combination of Brazil and Argentina is forecast to increase 8% for marketing year 2024-25 to a record high of 220 million metric tons (Figure 4). Brazil alone is expected to harvest a 169 million metric ton soybean crop, a record and 10.5% higher than last year.

In anticipation of its massive soybean crop, Brazil’s export prices dropped below those of the U.S. in mid-December 2024 (Figure 5). While the harvest glut creates challenges for Brazilian producers, it also has enabled the country to meet growing global demand, including from major importers such as China, which increasingly turns to Brazil rather than the U.S. for its agricultural needs. As a result, demand for U.S. soybean exports is strained.

U.S. corn prices, on the other hand, have been helped by tight supply. USDA’s January WASDE report was a game changer for the market. USDA reduced its corn yield projection of 183.1 bushels per acre to 179.3, an unprecedented drop of nearly 2%. Ending stocks were revised down to 1.5 billion bushels from over 1.7 billion, which also reduced the stocks-to-use ratio. Why does this matter?  Historically, market volatility increases the closer the stocks-to-use ratio gets to 10%. Today, that ratio sits at 10.2%.

Global corn supply also is tight. In addition to the U.S., top global exporters of corn are Brazil, Argentina and Ukraine. These three countries have a combined stocks-to-use ratio of 3%, the lowest since marketing year 1983-84. Export prices for U.S. corn have been lower than those of Brazil and Argentina for most of 2025 (Figure 6). Reduced supply and strong demand has led to an increase in U.S. corn prices in the first quarter of 2025.

However, the Brazilian crop calendar is critical. Brazil plants and harvests two corn crops. In a typical year, about a quarter of the country’s total corn production comes from its first crop, planted between October and December and harvested from February through June. The second, or safrinha, crop is planted between January and March, with harvest beginning in June. USDA projects that between the two harvests, Brazil will produce its second-largest corn crop at 126 million metric tons, an increase of 3.3% from last year.

Brazil exports the largest share of its corn in the last five months of the year (Figure 7), and it has some competitive advantages in the global market, including:

• a weak Brazilian real against a stronger U.S. dollar;
• a potentially large crop, although U.S. corn production in 2025 will be a factor here;
• U.S. tariffs, which could trigger retaliatory actions, with U.S. agriculture expected to be in the cross hairs. 

Tariffs: Spring Chill

Tariffs can impact the economy in multiple ways, including higher prices, inflation and market sentiment. A tariff is essentially a tax; it increases the cost of imported goods, which businesses often pass on to consumers. That is why President Trump’s threat of tariffs since taking office in January was enough to increase consumer concerns about inflation and influence market sentiment even before he took formal action. 

U.S. agriculture, of course, is concerned about the impact tariffs will have on its three of its top trade partners -- Canada, China and Mexico. In 2024, these three countries accounted for 47% of total U.S. agricultural export value. Together, on a value basis, they bought 71% of Iowa’s  exports for agricultural products, which from the U.S. Census Bureau’s definition largely includes crops, and live animals and eggs and 29% and 38% of meat products and meat packaging products from Nebraska and Kansas, respectively. (Figures 8 and 9)

From 2017 to 2024, many states’ top export destinations for agricultural products, livestock and livestock products shifted, with less going to China and more to Mexico and Canada (Figures 10 and 11). The United States-Mexico-Canada Agreement (USMCA) played a significant role in strengthening trade relations and facilitating agricultural trade between the three countries, while geopolitical factors and trade tensions contributed to a decline in exports to China.

In 2024, Mexico surpassed China to become the largest buyer of U.S. agricultural exports. Mexico’s purchases totaled more than $30.3 billion, a 6.8% increase in sales. More than 40% of all U.S. corn exports were to Mexico. Canada followed close behind with $28.3 billion in purchases and China fell to third at $24.6 billion, a 15% decrease from 2023. Together, Mexico and Canade account for one-third of the approximately $176 billion in total U.S. food and agricultural exports.

The administration has made it clear it views tariffs as a key negotiating tool, and this has created uncertainty about how, when and against whom tariffs might be used. What does this mean for producers?

The seven-day average intraday volatility for U.S. corn futures  consistently points to the summer weather months of July and August – often a make-or-break period for corn – as the most volatile. Other seasonal patterns, global and domestic, lead to price swings, including planting and harvesting conditions.

While supply-and-demand fundamentals are at work, the Trump administration’s recent tariffs and threats of retaliatory actions from impacted countries have led to volatility that is more pronounced than historic, seasonal price swings.