How do you know agriculture is in a recession? | Elysia Rodgers

Agriculture is a business just like any other economic entity.

Jim Wiesemeyer, a Washington-based analyst and author of articles for Pro Farmer and Farm Journal, shares the following information on indicators to watch as agriculture enters a recession.

Agriculture can sometimes act as a buffer during broader economic recessions, as demand for staple foods tends to remain relatively stable. However, when multiple indicators align, it can signal a recession in the agricultural sector.

Analysts and economists recommend paying special attention to the following issues:

Declining farm incomes. A significant decline in net farm income is an important sign. For example, the USDA is forecasting another large decline in farm income for 2024, in addition to a large decline in 2023. That would be the largest two-year decline on record.

Rapidly falling commodity prices. Weak prices for major crops and livestock products may indicate economic problems for farmers. Crop prices are falling sharply, while the meat sector shows continued strength.

Increased input prices have costs. When input costs such as fertilizer, fuel and labor remain high and commodity prices fall, farm profitability declines.

Reduction in agricultural exports. Slowing exports and a widening farm trade deficit could signal economic challenges ahead. The USDA is forecasting a third straight year of U.S. farm trade deficit, with fiscal year 2025 projected to be $42.5 billion.

Debt versus cash flow. Rising farm debt relative to cash flow, coupled with higher borrowing costs due to rising interest rates, can strain farm finances.

Weakening credit conditions. Lower repayments on farm loans and more frequent loan renewals/extensions may be signs of financial stress.

Declining demand for agricultural products. Reduced consumer spending on discretionary food items during broader economic recessions could impact some agricultural sectors.

Falling value of agricultural land. Higher interest rates and lower farm profitability could put downward pressure on land prices.

Increased inventory levels. Growing stocks of agricultural and livestock products could cause further price declines.

Financial stress is widespread. When a large number of farmers from different regions and production sectors experience financial difficulties at the same time, it can be a signal of an industry-wide recession.

ELYSIA RODGERS is an ANR educator in DeKalb County with the Purdue University Cooperative Extension Service.