U.S. Farming Outlook: Opportunities and Challenges

Farmers can’t control the weather, but they know how to weather a storm. That astute observation from one of my colleagues at our 19th annual Farm to Market | Chemicals Conference in New York encapsulates the grit of the agribusiness industry.  

This year’s conference was a truly global event, with representatives from more than 200 agribusiness, protein, beverage distribution and retail companies from 14 countries in attendance. The real value for me is hearing from these business leaders and then working with my team to ensure we're using BMO's platform to support their goals and address their challenges. 

At the State of the Farmer Commercial Ag Lenders Roundtable, we focused on the current challenges and outlook for U.S. farmers. We learned the recent commodities price rally has provided a welcome boost to sentiment in the agribusiness industry, but with tight margins, supply chain issues and rising input costs, they are still looking for support. Helping the sector overcome these challenges was the central focus of the panel, moderated by: 

• Joel Jackson, Fertilizers & Chemicals Analyst, BMO Capital Markets 

• Andrew Strelzik, Restaurants, Beverages, Agribusiness & Protein Analyst, BMO Capital Markets 

And featured insights from a group of industry experts in BMO Commercial Bank:  

• Justin Emmi, Senior Relationship Manager, Agribusiness West Region 

• Janine Sekulic, Managing Director, Agribusiness East Region 

• Brock Thorberg, Managing Director, Agribusiness Central Region 

Here are a few of the main takeaways from the conversation: 

Mixed outlook for farmers 

After watching prices come down over the winter, farmers seized on a recent price rally to price a portion of their 2024 crops, explained Janine Sekulic with BMO Commercial Bank. The rally has significantly shifted the sentiment in the sector, at least for now. “There’s a bit of a sense of relief,” she said. “We’ll just see how the growing season goes.” 

Corn and soybean prices have declined in the western corn belt, but that’s been positive for meat, poultry and dairy producers, as feed costs have moderated, said Brock Thorberg, representing BMO’s Agribusiness Central Region.  

“Our outlook on dairy is much improved. Milk prices have moved up quite a bit in the past 90 days, and they’ve had a substantial feed cost reduction. Cattle are at record prices,” he said, adding that even the swine sector, which suffered acutely from high feed prices in 2023, is enjoying positive margins now. 

It’s harder to draw a single theme on the outlook for California, where 120 different cash crops are grown. Almonds have suffered four years of price declines, resulting in consolidation within the sector, said Justin Emmi, Senior Relationship Manager for the Agribusiness West Region. Citrus prices are strong; table grapes are in recovery. Though mildew has been a problem for vegetable growers, they’ve enjoyed strong pricing. 

“The blessing is we’ve had a lot of water,” he said, with water supply levels in most areas now back to historical averages.  

Farmers showing patience 

Although parts of the sector are experiencing below-break-even pricing, such as corn and soybeans in the Midwest, farmers are not taking radical steps to change their approach. Farmers have the choice of adding nitrogen to maximize yields, but most are staying patient rather than taking on additional costs in this market. As Thorberg explained, unless prices continue to rise to narrow the price gap, “the economics aren’t there.”  

High interest rates are also constraining purchases of new equipment. “They’re thinking maybe this is the year to fix and maintain versus go out and buy new,” explained Sekulic. 

Even West Coast farmers who have seen several years of stress have the advantage of high land prices, which enables them to recapitalize their businesses by selling land, if necessary, noted Emmi. “We’ve seen properties hit the market,” he explained. “If you have a developed orchard, you can liquidate it fairly readily.” 

Labor shortages lead to increased automation  

Farmers continue to face a shortage of labor, which has spurred investments in automation, explained Emmi. “There’s been a push to automate as much as possible to save labor costs,” he explained. Still, given high borrowing costs, growers are mindful of the return on investment.  

“Of all the labor-saving devices out there, maybe 10% of it is viable to save money on the bottom line,” he said. Some of the popular new products currently include automated spray rigs, a device that picks up buckets of picked grapes, and systems that use cameras, lasers, and other devices to suppress weeds on organic farms. 

Lowering carbon emissions 

Turning the conversation to sustainability, moderator Andrew Strelzik asked the panel whether the sector was making the necessary investments to lower carbon emissions.  

Thorberg explained that in terms of sustainable agriculture, many growers are struggling to meet standards for eligibility for tax credits set in Section 40B of the Inflation Reduction Act of 2022. Farmers are still waiting to see if there will be enough demand to help them earn a premium on certified farm products to justify the investments needed to qualify for the tax credits. “They’re waiting for market signals,” he said. “If they can make money at it and get a revenue stream, they’re going to do it.” 

Farmers are also looking for more flexibility around the requirements, added Sekulic. She noted that the sector is already increasing yields with fewer inputs and dealing with the stress of managing the health of the land while dealing with variable weather conditions.  

When asked what developments in the industry people should be paying more attention to, Sekulic pointed to efficiency gains that have seen yields rise even as inputs stay flat or decline. “How long has it been since we’ve had this small of a cattle herd in the U.S.? And we’re seeing incredible beef production. All of that is about sustainability, right? It already is a great story.” 

Lending amid uncertainty 

When it comes to lending in this environment, BMO is taking a long view. “We’re looking for that current and historic cash flow, but that’s not to say we’re not also looking at balance sheets,” Emmi explained.  

Given BMO’s long history serving this sector, the bank takes a comprehensive approach when assessing deals, explained Thorberg. Farms can be over-leveraged, but if their cost of production, efficiencies and management team compare well with their peer group, that’s where we can find long-term success, he said. Just like farmers, we’ve been through these cycles before, explained Sekulic. “At this point, we’re not making drastically different credit decisions,” she said. “We are approaching it from a risk mindset, but we’re prepared to work with our customers through this.” At BMO, we are committed to this industry, and we lend through the cycles. That is how we build long-term relationships.