Interest rates unchanged, net farm income up in 2025

Although the economy is aware of tariffs on imports and a promise of more to come, the Federal Reserve kept interest rates unchanged and forecasted two more rates cuts later in the year.

"Despite the fact that the Fed has raised rates from zero to a quarter percent all the way up to 5.5 percent, they've since reduced it one percentage point," said Bryon Parman, NDSU Extension agricultural finance specialist. "Based on low unemployment figures, the U.S. economy has absorbed that pretty well."

According to Parman, inflation has grown at a little bit slower pace than they thought it was. Headline inflation was expected to be 2.9 percent when the February numbers came out and it was 2.8 percent. Core inflation was expected to be about 3.2 percent, and it turned out to be 3 percent.

"It wasn't a massive point reduction in the rate of inflation over what the industry expected, but it was a reduction nonetheless," Parman said.

The unemployment rate had fallen below 5 percent when the U.S. came out of the pandemic lockdowns in mid-July of 2021."

Currently, just under 63 percent of the people in prime working age are employed, lower than before the pandemic. Population growth is flat or even going down.

It has ranged between the high 3s to low 4s for about four years – about the same as the unemployment rate was prior to the pandemic.

The unemployment rate has remained low despite the Federal Reserve's interest rate hikes, indicating the economy has absorbed the changes.

Looking back at unemployment, the years from 1998-2000 saw the highest labor force participation rate.

"That's the highest it has ever been in the U.S., where in 2000, more than 67 percent of all adults aged 16 and over were working. Since that peak, it has been a steady march downward," Parman said.

The last time unemployment was as low as 2025 was back in the 1940s and 1950s before women entered the workforce. During the pandemic, with lockdowns, labor force participation rate went down.

In other ag news, Parman was surprised to see USDA's projections for net farm income and net cash income, adjusted for inflation, for 2025.

"I was a bit surprised to see that USDA was projecting an increase of $41 billion in 2025 compared to 2024. Net farm income declines a little bit in 2024 and then this big increase in 2025," he said.

Where is this big increase in net farm income coming from?

USDA is projecting a significant increase in net farm income in 2025, primarily driven by an expected increase in direct government payments, rather than changes in commodity prices or production costs.

Net farm income, a broad measure of profits, is forecast at $180.1 billion for calendar year 2025, an increase of $41.0 billion (29.5 percent) relative to 2024 in nominal (not adjusted for inflation) dollars. After adjusting for inflation, net farm income is forecast to increase by $37.7 billion (26.4 percent) in 2025 relative to 2024.

Cash receipts for the major crops, especially the ones grown in North Dakota, show that corn is expected to be $2.5 billion lower this year, with soybeans around $3 billion lower in cash receipts this year compared to 2024. Wheat was also down.

Volume of sales for cattle and calves will be down, while dairy will be up a little, broiler chickens up, hogs up $1.5 billion, and a slight decline in eggs.

"That certainly doesn't explain $41 billion in net farm income increases. You might think that is on the production cost side, right? Well, not exactly," he said.

Parman explained certain costs are expected to be up, but not by much, which includes labor, livestock and poultry purchases, seed, property taxes and fees and net rents.

Feed costs are expected to be down slightly, as well as pesticides, fuel oil, and fertilizer.

"The real increase in cash income and net farm income seems to be coming from government payments," Parman said. "I say all that with the disclaimer that we still have the potential tariffs coming in."