CoBank Quarterly: Despite Shifting Sentiment on Immigration, Demographic Trends Will Necessitate a Moderate Path on Immigration

DENVER (July 11, 2024)—The U.S. economy continues to perform reasonably well by most metrics, but the red-hot labor market of the last two years is finally cooling off. The unemployment rate edged up to just above 4% in June and has risen 0.7% since January 2023. While an increase in the unemployment rate of 0.5% over a one-year period has historically triggered a recession, the recent uptick is highly unlikely to produce a similar result. It is more reflective of the labor market retuning to its historical norms following a period of extreme tightness.

According to a new quarterly report from CoBank’s Knowledge Exchange, the potential for a workforce shortage looms as a much larger, long-term problem for the U.S. economy. Shifting views on immigration combined with an aging U.S. population and falling birth rates could lead to a declining and ultimately insufficient labor supply.

“Due to the sharp decline in U.S. birth rates since the global financial crisis, we are poised to enter a long, potentially permanent period in which the number of retirees will outpace the number of native-born workers entering the labor force,” said Rob Fox, director of CoBank’s Knowledge Exchange. “And the declining supply of workers will drive wages higher causing inflation and hurting our overall global competitiveness.”

Recent national polling shows that immigration has surpassed the economy as the most important issue for voters and public sentiment is shifting toward stricter immigration policy. A set of more moderate federal policies that allows for a steady flow of legal immigration will likely be the only way to maintain a stable labor force, but the current bitterly divided political environment may prevent that outcome.

More immediately concerning for the U.S. economy is the steady decline in new job growth. Monthly job openings have dropped by more than one-third since mid-2022. Employers have not stopped hiring, but they are beginning to take a more cautious approach. Any further weakening in labor demand could trigger an additional slowdown in hiring and economic growth.

The agricultural sector continues to face economic headwinds. Increased crop acreage in the U.S. and rising production in South America have pulled grain and oilseed prices lower. Elevated farming costs are also contributing to sharply lower row crop profitability. Livestock producers will fare relatively better, but also face headwinds from the strong U.S. dollar and increasing trade challenges.

Grains, Farm Supply & Biofuels

The USDA recently reported higher-than-expected totals on corn acreage and stocks, which should provide a buffer against any losses from recent flooding in key growing regions. Corn prices ended the quarter 11.5% lower. Soybean crush continues to reach record highs, but record imports of canola, tallow and used cooking oil have softened soybean oil prices and weakened crush margins. The U.S. wheat harvest is moving at a fast clip with farmers reporting much better yields than last year’s crop.

Farmers entered the 2024 growing season with higher financing needs to cover elevated input costs. In June, USDA forecasted crop production costs would remain relatively stable through 2025, while crop prices have dropped considerably since 2022. Sustained high fertilizer prices amid lower new crop values may push some farmers to delay fall applications and additional purchases.

Lower corn and natural gas prices have helped boost ethanol production margins. Domestic ethanol demand has tracked lower in recent months, in tandem with flagging gasoline demand. However, export channels offer promising demand for U.S. ethanol with Canada emerging as the top new market.

Animal Protein & Dairy

As expected, U.S. beef production is in decline for the year. But it is not falling as fast as once projected. Cattle spent extra days on feed during the second quarter, resulting in carcass weights averaging 10 pounds heavier than Q1. Profits in the value chain have transitioned away from beef to cattle, softening packer margins and boosting revenues for producers and feedlots.

Soft feed prices and firm hog values have bolstered profitability among pork producers. Improved processor demand and strong wholesale cutout prices led to a prolonged stretch of elevated hog prices. An uptick in consumer demand for value-based protein appears to be supporting retail pork sales. U.S. pork exports comprised 31% of all pork produced during the first four months of 2024, a record high.

Chicken continues to be the default protein choice for consumers seeking nutrition, convenience and value. The U.S. broiler industry is hitting those marks in stride with consumer-friendly prices and innovative new offerings designed for quick and easy meal preparation. Broiler integrator margins are improving as markets heat up and input prices fall.

U.S. milk production fell for the 11th straight month in May. However, combined butterfat and protein production posted steady gains over the same 11-month period. Low cheese prices on the spot CME market boosted international sales. U.S. cheese exports exceeded 100 million pounds in March, a record high for one month, and then again in April and May. Highly Pathogenic Avian Influenza continues to affect cows in at least a dozen states. Until a vaccine reaches the market, the dairy industry is facing lower milk output from affected herds.

Cotton, Rice & Sugar

Cotton prices tumbled 22% last quarter as U.S. farmers expanded acreage in response to the early year price rally. This fall’s cotton prices are now expected to be below the cost of production for many U.S. farmers. The export outlook for U.S. cotton is also dimming amid a slowdown in Chinese demand. Global cotton stocks for the 2024-25 marketing year are projected to be the highest in five years as production expands faster than mill use.

Floods in Brazil’s top rice-producing state caused widespread crop damage across the region, driving Brazilian and U.S. prices higher last quarter. U.S. rough rice prices climbed 6.1%. The quick rise in Brazilian rice prices has made U.S. rice more competitive on the global market and lifted the outlook for exports. A continuation of India’s ban on rice exports will also benefit U.S exports.

World sugar prices continued to slide lower last quarter, falling 13.9% due to improved harvest prospects in Brazil. However, tight global supplies should limit any further erosion in prices. USDA is expecting 2024-25 global sugar ending stocks to be the lowest in 13 years as worldwide demand continues to accelerate.

Food & Beverage

U.S. consumers are taking more pronounced steps to stretch their food dollars in response to persistently higher prices. Those steps include forgoing restaurants in favor of at-home dining, trading down to private label brands and capitalizing on promotional discounts. Faced with eroding volume sales, retail food and beverage brands are pruning prices, increasing promotions and in some cases, trimming their product portfolios. Meanwhile, restaurants are rolling out a flurry of new value-oriented offerings, a trend not limited to quick service options. The battle for sales recovery will demand a price-conscious approach.

Power, Water & Communications

The tendency toward hotter summers has far-ranging implications for an electric grid that was engineered at a time of milder weather. But recent assessments from NERC and ERCOT suggest the breakneck development of solar solutions appears to be fortifying summertime resiliency. Grid operators, state regulatory agencies and utilities are also finding that price-based demand response programs can be used to effectively manage loads and mitigate the risk of summer blackouts.

Recent merger and acquisition activity in the digital infrastructure market represents a shift in strategy, with some operators shedding non-fiber assets and doubling down on fiber. Fiber to the premise remains a very attractive business given its rich margins and growth trajectory. Competition is expected to intensify due to the favorable conditions and large operators like T-Mobile entering the market. The race to build fiber networks in underserved and unserved markets is in full swing.

Read The Quarterly. Each CoBank Quarterly provides updates and an outlook for the Macro Economy and U.S. Agricultural Markets; Grains, Biofuels and Farm Supply; Animal Protein; Dairy; Cotton and Rice; Specialty Crops; Food & Beverage industries and Rural Infrastructure.

About CoBank

CoBank is a cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 77,000 farmers, ranchers and other rural borrowers in 23 states around the country.

CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.