Joe Mahon, Director, Regional Outreach Federal Reserve Bank of Minneapolis

After turning south in 2023, agricultural producers in the Ninth District saw their earnings decline further through the middle of 2024, according to results from the Federal Reserve Bank of Minneapolis’ second-quarter agricultural credit conditions survey.

Farm incomes decreased broadly from April through June relative to a year earlier, according to the survey, which was conducted during July. Spending on capital equipment also dropped, while farm household purchases increased.

Even as interest rates ticked up, falling incomes boosted loan demand, while the rate of loan repayment dipped slightly, and renewal and extension activity rose. Farmland values rose further, while cash rents also increased. Survey respondents predicted the third quarter will bring further declines in income, though they expect overall financial conditions to hold up better.

“Continued high input costs with lower commodity prices will result in decreased liquidity in many operations,” said a Minnesota banker. Many of their peers agreed, as 85 percent of lenders reported that borrower liquidity had decreased in the past three months from the same period a year earlier.

Farm incomes and spending also decreased due to weaker crop prices. More than 75 percent of district lenders surveyed reported that farm incomes decreased in the second quarter of 2024 from the same period in 2023, compared with only 11 percent who reported increased incomes. Nearly half reported that capital spending decreased. In contrast, spending by farm households increased on balance, as 40 percent of survey respondents saw an increase compared with 15 percent who reported decreases.

Owing to a prolonged decline in incomes and elevated operating costs, demand for credit increased in the second quarter, according to lenders. Nearly half of respondents indicated that loan demand increased relative to a year earlier, compared with 1 in 5 who reported lower demand. Collateral requirements were unchanged according to a strong majority of lenders surveyed—87 percent—though the remainder reported that they increased. Average fixed and variable rates on operating, machinery, and real estate loans all increased slightly in the second quarter.

“We have completed our renewal season and for the most part our customers had a good year,” commented a South Dakota lender. Loan renewals generally increased across the district, while the rate of repayment on agricultural loans decreased on balance, reflecting overall stability in farm finances. Nearly a third of lenders stated that the number of renewals increased from a year ago, with almost all of the remainder reporting that renewal activity was unchanged. About 1 in 5 respondents reported that the rate of loan repayment fell from a year earlier, while only 5 percent said that repayment rates increased. None of the bankers responding to the survey reported having refused a loan due to a shortage of funds.

Continuing a four-year trend, land values and cash rents grew further in the second quarter. Ninth District nonirrigated cropland values increased by 3 percent on average from the second quarter of 2023. Irrigated cropland values rose by more than 13 percent from a year earlier, while ranch- and pastureland values increased to just under 13 percent. The district average cash rent for nonirrigated land jumped by less than 1 percent from a year ago. Ranchland rents increased by 11 percent, while cash rents for irrigated land fell by almost 3 percent. Changes in land values and rents were somewhat mixed across district states, with the highest rates of increase in Wisconsin and North Dakota, while values fell in South Dakota.

A comment from a Minnesota lender captured the pessimistic sentiment for the sector: “With declining grain prices and a poor crop in the field 2024 is shaping up to be a below average year!”

Over the next few months, survey respondents said they expect further downward momentum in incomes. Across the district, 78 percent of lenders expect that farm income will decline in the third quarter of 2024, compared with 7 percent who forecast increases. The outlook for capital spending was also negative, while expectations for household spending were flat. Lenders predicted that loan demand will grow on balance in the upcoming quarter, with half of respondents expecting increases and 13 percent predicting decreased demand. The outlook for loan repayment was generally stable overall, as 71 percent of respondents reported they expect no change in repayment rates; however 22 percent forecast repayment rates to decrease. Almost all respondents were not planning any change in collateral requirements for borrowers.

By Scott Lincicome,

Cato Institute,

In North Carolina, Kamala Harris called for a new federal law to ban “price gouging on food.” Such a law might be popular, but it would have, at best, no impact on grocery prices and might even make the problem worse. That’s especially unfortunate because it distracts from all the federal policy changes that actually could reduce food prices.

The evidence that price gouging was responsible for the post-pandemic spike in food prices is somewhere between thin and nonexistent. A recent report from the New York Federal Reserve found that retail food inflation was mainly driven by “much higher food commodity prices and large increases in wages for grocery store workers,” while profits at grocers and food manufacturers “haven’t been important.” Similarly, a 2023 report from the Kansas City Fed observed that rising food prices were overwhelmingly concentrated in processed foods, the prices of which are more sensitive to (and thus driven by) labor-market tightness and wage increases.

Even if excessive corporate profits had been the cause of higher food costs, a price-gouging ban would do nothing to relieve Americans’ current burdens for the simple reason that food prices long ago stopped rising. From January 2023 to July 2024, the “food at home” portion of the Consumer Price Index increased by just over 1 percent, much less than the overall rate of inflation, and consistent with the long-term, pre-pandemic trend. The U.S. Department of Agriculture adds that the share of consumers’ income spent on groceries, which did tick up during the pandemic, declined last year and remains far below levels seen in previous decades. Did corporate profiteering suddenly just stop?

The real culprit is the host of federal laws and regulations propping up prices to benefit corporate interests.

In reality, the grocery business has always had notoriously thin profit margins. The industry’s average net profit margins were just 1.18 percent in January 2024—ranking 80th of the 96 industries surveyed and lower than the margins the food industry recorded in all but one of the past six years. Even Biden White House economists’ own analyses of grocery-price inflation in both 2023 and 2024 downplayed corporate profiteering when discussing recent price trends and what’s behind them.

Inflation is generally a macroeconomic issue, driven by broad monetary and fiscal policies, not the choices of individual corporate actors. Food prices in particular are shaped by volatile forces—weather, geopolitics, natural disasters—beyond government control or influence, which is why economists’ “core inflation” metric omits them. As economics textbooks and centuries of experience teach us, limiting the amount that companies can charge is more likely to reduce supply by discouraging investment and production: a recipe for both shortages and higher, not lower, prices in the long term. The main solution to voters’ grocery angst is simply time, as normal market conditions return and American incomes slowly outpace U.S. food prices.

That fix, of course, is a nonstarter for candidates running for an election just months away and tagged, fairly or not—mostly not—with causing higher grocery prices.

The good news is that an eager White House and Congress, laser-focused on food prices, have plenty of policy reforms available that would give American consumers some relief. The bad news is that they would all involve angering powerful business interest groups, which is why they never actually happen.

Start with trade restrictions. To protect the domestic farming industry from foreign competition, the United States maintains tariffs and “trade remedy” duties on a wide range of foods, including beef, seafood, and healthy produce that can’t be easily grown in most parts of the country: cantaloupes, apricots, spinach, watermelons, carrots, okra, sweet corn, brussels sprouts, and more. Special “tariff-rate quotas” further restrict imports of sugar, dairy products, peanuts and peanut butter, tuna, chocolate, and other foods. These tariffs do what they are designed to do: keep prices artificially high. Sugar, for example, costs about twice as much in the U.S. as it does in the rest of the world. The USDA conservatively estimated in 2021 that the elimination of U.S. agricultural tariffs would benefit American consumers by about $3.5 billion.

In addition to tariffs, regulatory protectionism—against imported products such as tuna, catfish, and biofuel inputs—causes more consumer pain for little health, safety, or environmental gain. The 2022 baby-formula crisis exposed the degree to which Food and Drug Administration regulations effectively wall off the U.S. market from high-demand, safely regulated alternatives made abroad—alternatives that the Biden administration tapped when the crisis hit.

Propping up the domestic food sector is a long-standing American tradition. For dairy products, the Agricultural Marketing Agreement Act of 1937 artificially raises milk, cheese, and other dairy prices, while USDA loans to sugar processors effectively create a price floor for sugar. Produce-marketing orders allow U.S. fruit, nut, and vegetable farmers to limit supply and set rigid inspection rules and other terms of sale that stymie foreign competition and entrepreneurship and further increase domestic prices.

Finally, there’s U.S. biofuel policy. The federal Renewable Fuel Standard, created by Congress in the 2000s, requires a certain amount of biofuels to be blended into transportation fuel. The purpose of this mandate is ostensibly environmental: Burning corn-based ethanol produces lower greenhouse-gas emissions than burning gasoline. But, as a 2022 study published in the Proceedings of the National Academy of Sciences concluded, when the environmental impact of growing and processing the corn is taken into account, ethanol contributes significantly more to climate change. The fuel standard thus has a negative environmental impact even as it significantly increases U.S. corn prices and reduces the land available for other crops. The Congressional Budget Office and other organizations estimate that artificial demand for ethanol has raised Americans’ total food spending by 0.8 to 2 percent. Additional price pressures are likely on the way, if they’re not here already: A 2024 Kansas City Fed analysis estimates that Inflation Reduction Act subsidies for “clean” and plant-based transportation fuels could boost demand for and prices of oilseed crops and vegetable oils.

Our elected officials not only ignore these measures but actively work to add even more.

This reveals a sad reality for American consumers. The federal policies inflating U.S. food prices all result from the same political malady: Each one on its own costs the average person a few cents here and there, but it delivers big and concentrated financial benefits to American cattlemen, shrimpers, farmers, sugar barons, and other powerful groups. As a result of this imbalance, we consumers rationally ignore the policies, while the beneficiaries fiercely lobby to maintain them.

So, when elected officials must choose between modestly reducing Americans’ grocery bills and delivering many millions of dollars’ worth of regulatory goodies to entrenched political benefactors, the choice is simple. Consumers don’t stand a chance.

“Corporate greed” is indeed a problem in the U.S. grocery market. Just not in the way politicians say it is.