We provided several educational sessions at Commodity Classic in Denver. Below are edited excerpts from a panel discussion with Matt Erickson, our economist, and Joe Dagher, head of public affairs at Farm Credit Mid-America. The conversation, sponsored by Farm Credit, took place about five weeks after President Donald Trump was sworn in.
The political climate plays a significant role in shaping the economic environment, directly impacting agricultural operations. By analyzing trends in the broader economy, inflationary pressures, and interest rates, you can position your operation for resilience and growth. Regularly revisiting these topics will help you adapt to changing economic conditions and maintain competitiveness. Watch the full panel discussion.
Speakers: Matt Erickson, our economist, and Joe Dagher, head of public affairs at Farm Credit Mid-America
Politics: Big Agenda, Mid-Term Pressure
Dagher: We all know Trump won the White House and Congress is controlled by Republicans. But it is important to pay attention to what those margins of the majority look like.
On election night, the margin in the House was 220 to 215 in favor of Republicans. What happened shortly after that is making life in Washington a little more difficult for Republicans. The president nominated three individuals from the House of Representatives to serve in his administration. Now you’re down to 217.
It’s a little different in the Senate, where individuals possess a lot of power based on the rules; any one senator can hold up the process. There are 53 Republicans in the Senate and 47 Democrats, and unlike the first time President Trump was elected, the Republican Party is very much aligned with the president’s agenda.
The rubber hits the road when we’re looking at the big policy agenda and how that comes together. It also is interesting to note that this is the first time since Grover Cleveland that we’ve had a president elected to a second, non-consecutive term. The typical fits and starts – the figuring out how government runs and how to execute the duties of the office – aren’t there. This is, in fact, the president’s second term.
That is why we are seeing such velocity behind a lot of the policy actions. Conceivably, a lot of staff has thought about how the job was done and how they would do it again. And we have a mid-term in two years. To get a stamp of approval, they have to show they have put forward an effort on the policy front.
Trump 1.0 vs Trump 2.0: Governing in a Changed Economy
Erickson: During Trump 1.0, we had a relatively weak dollar. It’s a much different situation today. We have the strongest sustained dollar since the early 2000s.
The table below, where we look at Trump 1.0 and Trump 2.0, is the intersection of the macroeconomy and politics. There were a lot of pro-growth policies put in place back in 2017 and the Trump tax credits were passed through the reconciliation process.
U.S. Economy: Trump 1.0 vs. Trump 2.0
Indicators | 2017 | 2025 | Today |
|---|---|---|---|
U.S. GDP | 2.2% | 2.3% | -1.5% (Q1 2025F) |
Unemployment Rate | 4.7% | 4.0% | 4.0% |
Core Inflation (PCE) | 1.86% | 2.79% | 2.6% |
Federal Funds Rate | 0.29% | 4.33% | 4.33% |
U.S. Dollar Index | 99.6 | 109.4 | 107.6 |
10-yr. Treasury | 1.94% | 4.65% | 4.20% |
Today, it’s important to focus on this GDP number. This number will change without a doubt. But so far in 2025, in the first quarter, it is a negative 1.5%. That is a pretty steep decline from quarter four of 2024. So what happened?
In anticipation of tariffs, companies bought imports. That is first and foremost. But don’t forget how much the consumer has carried this economy. Consumer spending has been robust. Wages have seen growth of roughly 4% year-over-year, unemployment is at 4%. Those things are inflationary pressures today.
Now look at the Federal Funds rate. Back in 2017, we were at historically low interest rates of 0.25%, which helped us create a weaker dollar. Today, we’re at an effective rate of 4.3%. We’re in a lot different situation than we were in Trump 1.0.
Dagher: I’m going to jump in here. As Matt mentioned, the affiliate GDP is going to fluctuate, and policymakers will be focused on that number. If it remains where it is today, that is going to spell a lot of trouble in the mid-terms. They have to make strides to enact a pro-growth policy in the next two years. That ultimately is how they get another two-year lease so they can continue to enact policies.
Interest Rates: A Wait-and-See Fed?
Erickson: The Federal Reserve’s goal is to get core inflation down to 2%. That isn’t just they’re mandate. That is the point at which you basically achieve price stability in the marketplace and maximum employment.
We had a relatively OK reading in January – 2.6%. But if you’re Chairman Powell and you have things like tariffs and some of these pro-growth policies, you know there is inflationary pressure at play and you might want to see how this plays out in 2025.
Last September, the market was hollering about 150 basis points worth of cuts in 2025. Now we’re down to about 50 basis points.
Policy Priorities: Taxes and Trade
Dagher: What is going on in D.C. comes down to a few core policy issues that the president and Republicans in Congress campaigned on: Increasing domestic energy production, securing the border and extending the expiring tax provision.
I’m not going to go through every tax provision. But if you recall in 2017, Congress lowered corporate and individual tax rates, lowered certain thresholds and raised certain exemptions. Some of the provisions are scheduled to reset to pre-2017 levels at the end of the year, which has the potential to be disruptive in an uncertain economy. Tax reform is expensive, and Congress is currently debating how to pass all this stuff in an environment where they are being asked to cut government spending.
Trade also is a very important priority for the White House. I think Republicans in Congress are trying to figure out how they navigate this world. They want to give the president enough room to negotiate trade deals, to make trade relationships better going forward. But what role do they play in this process? At some point, Congress may be asked, or may have to, make decisions to provide support for industries impacted by some of the trade actions we’re taking. When you bring in Congress, it becomes a much harder political puzzle to put together.
Farm Bill: Cuts Complicate Outlook
Dagher: The Farm Bill is incredibly important and something Farm Credit is strongly advocating Congress take up before the end of this fiscal year. That is very complex, and one big reason is the budget reconciliation process, which gives direct instruction to either increase or decrease spending.
The House Agriculture Committee, in the bill passed by the House of Representatives, has been asked to cut $230 billion. I know D.C. now talks in trillions. But $230 billion out of agriculture programs – be it on the nutrition or farm side – is a lot of money.
An impasse over essentially $30 billion hung up the farm bill process before. Now you must figure out how to cut $230 billion. Is it impossible? No. But it is complex and challenging.
Agricultural Producers: Where to Focus in a Changing Environment
Erickson: Being a farmer with $7 corn is much easier than when corn is $4. Margins are getting tighter, prices are more volatile on the downside, the supply-and-demand fundamentals, as well as government policy, is less certain.
We’ve got to be better managers. The best managers have a plan – not just for now but also for the future – and they stick to that plan. What I am talking about here is debt management. The macro economy has changed compared to five years ago. Think about the Federal Reserve’s interest rate policies. Make sure you are comfortable with your debt structure for 2025.
Another focus area for 2025 is fixed costs: family living, machinery, cash rents. These prices have remained relatively sticky. As long as fixed costs remain elevated, l look at this as a boom-and-bust cycle.
On the revenue side, on our farm, we use our cash flows for planning as well as benchmarking what our break evens could be. All of us in this room are living with policy uncertainty. Volatility can be your friend. We always talk about the downside of volatility and lower prices. But prices also can move higher. If you know your cash flows, your break evens, you can act when the market tells you to maybe set some positions.
When you go through your cash flow projections, remember they are just projections. But use them from a revenue and cost standpoint. What would happen if my revenue projections are 2% or 3% off? Or maybe a better example, what would happen if my cost of production is 2% to 3% off? What price would I need to get to protect my margin, my break even?
We’ve got to be vigilant in terms of following commodity prices, use our risk management tools and use our numbers to sensitize, sensitize and sensitize again.
