NW Call to Action
’24 4th Quarter Outlook
Time for our quarterly update! Where applicable I am going to share what my opinion was at the start of the year compared to where we are today.
To read the previous outlooks:
Let’s see where I got it wrong!
Interest Rates
(January comments: While there have been expectations in Wall Street that we see 3 rate decreases in 2024, I’m not buying it.)
I will probably be wrong on my beginning of year outlook for rate decreases. While the services industry continues to have sticky inflation, other areas have been regressing. One place that continues to be a concern is the housing market. Rent inflation is going through the roof, in part because everyone has their home mortgage financed at an extremely low rate and isn’t willing to move. This is creating excessive demand for rent and could be a reason for the fed to decrease rates to help with the housing problem.
FedWatch (Source: CME FedWatch Tool – CME Group) is expecting more rate decreases before the end of the year. The next meeting is November 7th with a final meeting for the year in December.
We no longer have an inverted yield curve between the 2 year and 10 year treasuries. An inverted yield curve is when short term rates are actually higher than long term rates. This is inverse from logic in that you get paid more for investing in the short term compared to the long term. An inverted yield curve typically is followed by a recession. Since we no longer have an inverted yield curve, this is promising for the U.S. economy.
10 year treasury bonds have been slowly moving lower since late spring and are .78% off their high for the year. (Source: Resource Center | U.S. Department of the Treasury) This is a huge advantage for those looking to purchase and finance real estate, as many interest rates are again below 7% to finance farm ground, creating more favorable cash flows.
Land Prices
(January comments: I feel we have peaked over the past 18 months and are on our way down.)
I have yet to see a higher price in 2024 for my area than what was sold in 2023. Lower commodity prices from January-March put a damper on the farmer’s mood and created more conservative spring land sales. The early private deals I am aware of going into this fall have followed the spring trend. There are some auctions in my area which could test highs, but up to this point we are lower than 2023 with still strong prices. The bottom does not appear to be falling out and we are off the highs.
There is plenty of real estate moving, mostly private deals up to this point. Realtors I have spoken with do have ground that will be made public soon so get your financials in order now.
Yields
There was good moisture early in the year which moved the crop along well. The faucet has been mostly shut off since early August, but early returns for yields in Nebraska have been strong and well above APH.
Equipment Prices
(January comments: I don’t expect new equipment prices to move lower, even in an ag recession.)
I disagree with my January comments here. News I heard this summer was that dealerships were rejecting the trade-in of certain high-priced items because of the lack of a resale market. There have been some viral posts of online equipment auctions bringing ridiculously low prices and rumors continue that more of this could continue.
I’ve also seen an uptick in the leasing of tractors with favorable terms. Leasing can be a good tax planning strategy and should be considered if an equipment change is needed for your operation.
Operation Improvements
Equipment sales may have slowed, but there are still plenty of buildings, irrigation improvements (converting motors to electric), and tile work that went in the first half of the year. New buildings still went up this summer and grain bin construction crews have been busy. Money has been spent on improvements this year.
Commodity Price Direction
(January comments: If you overlay an ending stocks to use ratio with corn prices, it doesn’t paint a pretty picture. Our current figure is around 14%, which historically would imply corn prices below $4/bu.)
The ending stocks to use ratio has decreased some and commodity prices experienced a nice rally in April-June to allow for strong sales, helping preserve working capital levels. Even with record yields now into the projection, prices have gone in a positive direction heading into harvest.
A weaker dollar and high usage has helped chew through our grain stocks.
Marketing and Weather
(January comments: Some reports show the possibility of a wet spring which would be beneficial for a spring rally.)
Nailed it! Don’t thank me though. I get my weather updates from Eric Snodgrass with Nutrien Ag Solutions, you should sign up for his e-mail, eric.snodgrass@nutrien.com, and check out his videos here: Sept 23, 2024: Disappointing Weekend Rains = Drought Expansion | High Probability of Tropical System (youtube.com)
This has been one of the dryest early falls on record for the Midwest and there doesn’t appear to be any relief in sight.
I sold a good portion of my ’24 crop in December 2023 and January 2024. 25% of my expected ’25 corn crop has been priced and I have already dipped my toes in the water for ’26 sales. Every marketing plan needs to be personalized based on your personal position and appetite for risk.
Working Capital Trend
Thanks to the spring rally, working capital recovered slightly from the lows that were experienced in March due to lower commodity prices from unhedged grain on the balance sheet. This was a relief as working capital levels were disappearing.
Strong yields in my area combined with an uncharacteristic harvest price rally should allow for many operations to maintain or improve their working capital position for the year. The March price collapse created a lot of worry and prevented much spending for the year, helping keep cash in farmers’ pockets. I will have a much better feel for this with my ’25 Ag Outlook!
Overall Financial Picture
(January comments: Every operation, regardless of their Working Capital or Net Worth movement in 2023, will need to be very careful with all expenses, decision making, and marketing in 2024 to be profitable. Farm made projections are very tight even with some overly optimistic commodity prices.)
With strong yields and decreasing interest rates, there is reason for optimism when we update year end financials for 2024. Balance sheets will hopefully ‘hold it together’, allowing for calculated growth in 2025 for many operations.
I expect breakeven projections for 2025 to continue to be tight. Continue sharpening your pencils and find ways to improve net profit within the operation.
Final Summary
Every operation is different and needs alternative advice compared to their neighbor. Nothing mentioned above is a one size fits all approach. While I hope this is helpful, what is better for your operation’s well-being is to update your own financials, run them by a trusted financial advisor, make your own plan for the upcoming year, and adjust that plan when necessary.
If you have been impacted by flooding or severe weather, my thoughts are with you. Keep your head up and stay resilient.
Good luck and have a great week!
Grant
All views expressed on this site are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated. Information provided is authentic to the best of my knowledge, and as such, is prone to errors and the absence of key details. The content of this blog is for entertainment and informative purposes and should not be seen as professional advice to finances or any other field.