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