2025-01 PAER: Outlook 2025

Welcome to the Outlook 2025 Issue of the PAER! We are publishing a little later than usual this year to give our contributors time to track policy developments tied to the incoming presidential administration. The 2024 election looms large on the economy in this year’s outlook content – with voters opting for a policy agenda with many potential impacts for agricultural fortunes.

The issue leads with Larry DeBoer’s outlook for the US economy. He explains how the US staved off predicted recessions in the 2023-24 window and spent most of 2024 with solid economy fundamentals. Continued significant dissatisfaction with the economy drove voters to pick a presidential ticket that promised a widespread shakeup of the economy, including more tariffs, tax cuts, reduced government spending and aggressive immigration policy.

Russell Hillberry examines one aspect of that economic shakeup: the promised tariffs on the US’s three largest trade partners of the new administration. He uses the most recent trade war outcomes to explain how potential retaliations and escalations are likely to disproportionately burden export-oriented agriculture — depressing farm incomes that could require expanded subsidies to farms as was done in 2018-2020.

Dewey Robertson and associate professor Roman Keeney pick up on the domestic policy realm, reporting that the long-delayed farm bill stands a good chance of passage in 2025, with Republicans assuming unified control of the federal government. Getting a farm bill would be a positive for the agricultural economy, but a number of items in the economic policy agenda, including reduced spending, removal of migrant workers and tariffs, all could create disruptions that impact incomes more drastically than farm subsidy programs can accommodate without additional emergency funds.

The final general economy piece this year concerns the level of food prices. Caitlinn Hubbell and Joe Balagtas examine food price inflation rates, finding that they have lowered to 1.8% while consumer perceptions of increased food costs remain high. This perception is likely driven by lingering reactions to overall prices that are 25% higher than in 2020. They point to a general continued lowering trend in inflation, though specific products like eggs, chocolate and coffee are experiencing price increases due to disease and drought conditions impacting production.

As usual, we use the middle of the issue for rural economy issues, and this year, our contribution comes from Laura Montenovo, who reports on health outcomes in Indiana relative to the rest of the country. Examining uninsured rates in Indiana, she finds they are slightly lower than the national average, but there is considerable heterogeneity throughout the state. Comparing this to health outcomes, there does not appear to be evidence of strong correlation between life expectancy and uninsured rates across Indiana counties.

We turn to the farm economy specifically for the second part of the issue, beginning with Joshua Strine and Todd Kuethe reporting on credit market conditions. They find the outlook is moderately pessimistic for 2025, with lower operating margins on farms and increased demand for credit despite higher rates and limited funds. There is potential for some relief on the horizon. If the economy maintains stable unemployment and sees continued lowering of inflation, then there are strong signals that the Federal Reserve will lower the federal funds rates that steer borrowing rates across the country.

Those lower operating margins are the subject of Michael Langemeier’s outlook on cost and returns for crops. Using available information from January, he estimates per-acre costs and breakeven rates for cash crops that are very similar to 2024 but much higher than pre-COVID levels of 2019. High input costs continue to drive low per-acre profitability measures. Langemeier provides regular updates to crop cost and returns estimates on the Center for Commercial Agriculture’s website.

Kuethe, in a second contribution to the issue, identifies the high input costs and tight margins for crops as a cause for dipping low incomes. In a Purdue survey record, land values are recorded for the 2024 year, but respondents indicate that these levels are weaker than in 2022. These mixed signals indicate that flattening or slight declines are likely on the horizon for land values. Those same market fundamentals are expected to put downward pressure on cash rental rates.

In our final focus on agricultural markets, Nicole Widmar looks to 2025’s prospects for dairy markets. Key indicators predict that output will be up again, as HPAI was managed with additional testing mandates limiting spread and a prognosis that most cows are able to recover. She notes that concerns remain and that management will continue to be a policy concern. Broader policy concerns remain in trade, where dairy has been a source of dispute that could be impacted by trade restrictions.

We close this year’s issue with a second contribution from Laura Montenovo. In this special feature, she summarizes an international study focused on COVID-19 outcomes, a topic that continues to influence economic fortunes in the US and around the world. The focus of the article is labor market outcomes with labor demand factors of hirers being the common driver of job losses across countries. Specifically, job market losses track closely to a sector’s requirements for face-to-face work versus the potential flexibilities for occupational duties to be completed remotely.

The editors would like to thank our contributors for their hard work in making this issue possible, and we hope the information continues to be useful and thought-provoking for PAER readers. We also encourage readers to keep up to date with the many centers in Purdue’s Agricultural Economics Department, where valuable information on commercial agriculture, agribusiness, food demand and food waste, global trade, and regional development can be found.

The Outlook 2025 issue captures a comprehensive snapshot of the department’s efforts to support stakeholders through research and education, advancing the land-grant mission of Purdue Agricultural Economics. We hope this publication provides valuable insights for the year ahead.

Roman Keeney, Associate Professor of Agricultural Economics and Co-editor of Purdue Agricultural Economics Report