Understanding Where the Whole Farm Economy Stands

In early February, the USDA’s Economic Research Service projected nominal U.S. net farm income for 2025 at a near record $180 billion — a hair behind 2022’s $182 billion and up $41 billion from 2024. This early farm income estimate was bolstered by historically high cash receipts from the livestock sector and more than $42 billion in federal aid to support farmers after several years of catastrophic natural disasters in agriculture and to offset high input costs, low prices and tight margins in the crop sector.

The wind has shifted since February.

A Farm Economy Anomaly

A record 16.7 billion-bushel corn crop may be on the horizon. At the same time, prices for both old and new crops — from staples like corn, soybeans and wheat to rice, cotton and sugar — have fallen. These lower prices come at a time when production costs for these crops remain elevated and in some cases are at record highs. Crops are in a tight spot.

Meanwhile, cattle prices have continued to climb — reaching new record highs for fed cattle as well as feeder cattle — creating an additional revenue stream for dairies that have been able to breed to beef. Expectations for the all-milk price have remained steady, and farrow-to-finish hog margins remain in the black. Outside of eggs, poultry prices are also higher today than in February.

Livestock feed is among the largest costs of production in agriculture, and because of lower crop prices, margins for cattle feeders, dairy farms, hogs and poultry are more favorable today than when the USDA’s projections were made in February.

The USDA will update its 2025 farm income forecast in September. My expectation, given that livestock is ridin’ even higher than earlier in the year, is the USDA will forecast nominal U.S. net farm income at a new record high for 2025. If so, it would be a farm economy anomaly. Periods with above-average U.S. net farm income historically coincide with strong receipts in both the crop and livestock sectors.

One Big Beautiful Boost to the Farm Economy

With many crop farmers facing three or more consecutive years of margins at or below breakeven, members of Congress faced significant pressure to advance meaningful enhancements to farm risk management tools as part of the One Big Beautiful Bill Act.

The One Big Beautiful Bill Act made a historic $66 billion investment in programs critical to the farm economy, including crop insurance; commodity support programs for crop, livestock and dairy farmers; trade promotion programs; and conservation programs.

In addition to enhancements to risk management tools, the act also provided an extension for biofuel tax credits and prioritized North American feedstocks for biofuel production. To the extent that these provisions ultimately increase soy crushings or ethanol production, increased supplies (and potentially lower prices) of soybean meal and dry distillers' grains would be expected. Lower feed costs could help to offset potential weakness in milk prices in the months ahead.

Many of the farmer-friendly provisions of 2017’s Tax Cuts and Jobs Act, such as the exemption level on estate taxes and deductions on pass-through business income (199A tax deductions for farmer cooperative owners), were also made permanent by the act.

Estimates provided to Terrain by the University of Missouri’s Food & Agricultural Policy Research Institute suggest the enhancements to risk management tools alone (that is, not including the impact of additional trade promotion efforts or increased demand for domestic feedstocks for biofuel production) would provide a $47 billion boost to U.S. net farm income over the next decade. A step in the right direction.

Quiet Momentum

The outcome farmers ultimately seek is for economic returns and farm profitability to come from the market through strong demand and higher prices. While several trade deals have been announced, I suspect a trade deal with China is on the horizon — potentially welcome news given that China is the third-largest export market for U.S. dairy.

On the cost side, there are some hopes, too. A wobbly job market and sticky inflation are likely to result in an interest rate cut by the Fed by mid-September, which should lower borrowing costs for farmers and potentially increase economic activity across the wider U.S. economy. While hard to quantify, regulatory reform should also reduce costs and improve profitability for many family farms across the country.

Though the road may wind, and uncertainty may be high, I suspect momentum is quietly building in the farm economy.