High Corn Prospective Acres Meets Trade Uncertainty in 2025

Last month, the macroeconomic signals all pointed towards a continued pause in Fed rate cuts this spring. The Federal Reserve did just that in March, keeping rates at the target of 4.25-4.50% since December 2024. A look at the recent macroeconomic data helps explain their cautious approach and what might come next regarding rates.

From an agricultural economics perspective, March 31’s prospective planting report from the United States Department of Agriculture (USDA) showed farmers nationwide intend to plant 95.3 million acres of corn, up 5%, and 83.5 million acres of soybeans, down 4%.

Federal funds rate will stay the same until at least mid-May

At the March 18-19 meeting, the Fed kept the federal funds rate paused in the target range of 4.25-4.50%, as widely expected by forecasters and traders ahead of their meeting. They  also announced slowing their pace of securities reduction. Securities reduction is also known as quantitative tightening. During quantitative tightening, the Fed reduces the size of their balance sheet to try to decrease the overall supply of money – less money supply in the U.S. economy can help reduce inflation. They reduce the money supply by not buying back as many of these securities when they mature or by selling additional securities (bonds) on the market. 

The Fed commenced quantitative tightening in 2022 when inflation began surging. Along with quickly increasing interest via the fed funds rate, they used quantitative tightening to control too high inflation and too low unemployment from 2022-2024. While they did drop the fed funds rate at three meetings in late 2024 in response to lower inflation and higher unemployment, they didn’t moderate their quantitative tightening policy approach. So, one could argue this is simply allowing the balance sheet policy in spring 2025 to catch-up with the more growth-friendly fed funds rate policy from fall 2024. Beginning in April, they plan to slow the pace by 80% for quantitative tightening of Treasury securities. They plan to maintain the pace at which they are reducing their holdings of agency debt and mortgage-backed securities. 

The slowed pace of quantitative tightening of Treasury securities was the only notable change in monetary policy for the March meeting. This indicates a cautious approach recognizing inflation, unemployment and GDP has moderated significantly since the 2022 acceleration that caused the raised fed fund rates and quantitative tightening. But concerns persist, warranting their contractionary to neutral monetary policy stance. I’ll let the Fed summarize it in their own words:  

“Recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty around the economic outlook has increased.”

On the labor market side of the equation things are closer to the Fed’s target rate of unemployment. Nationwide unemployment rates as tracked by the Bureau of Labor Statistics (BLS) showed 4.1% unemployment in February. Job openings have been down slightly over the past several months and were only at an increase of 151,000 jobs month-over-month in February. The March jobs report will be released Friday, April 4, and is expected to show steady unemployment at 4.1%, with another decrease in jobs growth. Overall, these numbers show a fairly stable labor market.

Tariffs only moderately incorporated into the Fed’s current projections

But economic uncertainty for the future is high right now, from a shakier stock market to quickly changing tariff policy to fiscal disagreements in Congress. With a month or more lag in economic data reports, some of the biggest economic current events such as February and March’s on and off again tariffs, were not yet in the data the Fed examined for their March meeting. But that doesn’t mean the possible economic headwinds, like tariffs, were fully absent from Fed discussions in mid-March. The uncertainty showed in a few different economic charts the Fed released after their meeting. They lowered their estimate for Gross Domestic Product (GDP) in 2025 from 2.1% growth the 1.7% growth in 2025. Changes to their average estimates were also made for inflation and unemployment, both are now expected to be higher in 2025, but at smaller increments of change than their GDP adjustment. 

Another change showed up in the so-called “dot plot.” The dot plot captures the voting members projection of annual fed funds rates on a quarterly basis as “dot” on a graph. The March dot plot still has, on average, two rate cuts projected in 2025. But four members (represented by their anonymous “dots”) projected zero cuts for the remainder of the year. Unless economic indicator data in April are dramatically different than projections, the rates pause and quantitative tightening slow-down could continue at the next meeting in May. By June, there is a market expectation that one fed funds rate decrease of 25 basis points, or -0.25%, could resume. This is especially the case if economic growth really does slow significantly and/or unemployment increases. However, if inflation stays high at the same time, the Fed will be in a difficult position to justify a rate cut as that could further increase inflation. Slowed growth with high inflation is known as stagflation and is one of the worst things that can happen in advanced economies.

Last thought on the macroeconomy: long-term interest rates (e.g. average 30-year U.S. mortgages) have been on a slight downward trend since the December rate pause, so the Fed’s powers have limits and the interest market can go contrary to the desired Fed monetary policy impact.

The February prediction for corn was 94 million acres, shy of the March prediction by a hefty 1.3 million acres. How big is this corn prospective plantings acreage number in comparison to other years?

The last time corn prospective plantings expectations in March topped 95 million were 2020’s huge 97 million acres and 2013’s gigantic 97.3 acres. So, it’s somewhat rare to exceed 95 million acres prospective planting for corn but not unprecedented. Like many market watchers, I predicted there’d be a big increase for corn acres from February to March, but this was a bit more than most predicted (including me!) and at the top end of many pre-report ranges. Therefore, one could think the 95+ million number would have had a bigger immediate downward impact on futures market prices. Yet, in the trading post report release on March 31, corn futures price increased. Some argue the market had already priced in the large acre increases in the prior week(s) and that acreage increases could be on more marginal ground, limiting yield upside. Furthermore, the stocks report also came out March 31, showing corn stocks at 8.15 billion bushels, down 2% over the month, which could have helped the slight bullish-ness to the trading day. 

The February soybean forecast predicted 84 million acres, a half a million more than March’s report of 83.5. The lower March acre number for soybeans fell unsurprisingly within many pre-report market ranges and exactly where I thought it would. Soybean stocks were at 1.91 billion bushels, up 4% on the month. Post-data release, soybeans traded more bearishly than corn, despite the fall in acres, although the stocks increase might have contributed to some bearishness on March 31. 

All in all, near-term price-impacts were minimal as the market digested both the prospective acres and an update to grain stocks. Except for the very large corn acreage projection, there were little surprises. Even the high corn number was within the range of pre-trade estimations, hence the lack of market price volatility post reports release. From a market perspective, soybeans continued to show more price downsides than corn.

Retaliatory tariffs and uncertainty are the next market movers

With a relatively minimal immediate impact on the markets from the prospective planting report, the focus turns to tariffs and the possible impact of retaliatory tariffs on ag markets. 

In February and March, the biggest grain trading volume day was March 4 – the major Canada and Mexico tariffs announcement date – rather than any USDA report days including the March 31 report. For late winter and early spring 2025, when markets could predict and prepare for a known data release, e.g. a USDA report that gets released at a set time with a set methodology, the markets seem to be incorporating the information and baking that into the prices. Compared to USDA reports, it’s been harder to predict tariff announcements and what the ag-related impacts will be. There is a lot of will they or won’t they negotiate a tariff pause? Will there or won’t there be ag focused retaliation? These trade policy surprises are difficult to pre-bake into the market and seem to be driving big commodity trading days more than recent USDA reports. 

After the April 2 trade announcement, we certainly saw big market reactions and trading volume on April 3. The direction of those trades (sell-offs versus buying), depended on whether the tariff announcement was better or worse than predictions for the countries and commodities in question. In general, the announcement calls for a 10% baseline tariff on all countries starting April 5, with higher reciprocal tariffs on the EU, China, India and long list of additional countries beginning April 9. However, as previously negotiated on March 6, goods covered in the Harmonized Tariff Schedule of the Agreement between the United States of America, United Mexican States and Canada (better known by the acronym USMCA) remain exempt from further tariffs for now. This was a boon for some ag commodities. Because the USMCA tariff pause includes most North American agricultural products and since our top two ag trade partners are Canada and Mexico, some ag markets saw prices increase positively in early trading. Corn and lean hogs, which are exported both to the north and south and covered by the USMCA, were up in price before finishing flat on April 3. In contrast, many other agricultural goods, for example soybeans which are exported in greatest quantity to China, a country that is by very definition not in USMCA, were down even before retaliatory tariffs became clear. By April 4, China announced its own set of import tariffs at 34% for U.S. goods in retaliation, which caused beans to drop even further. If more retaliatory tariffs are announced without negotiated pauses or carve-outs, commodities are likely to fall further until a deal is struck.

Macroeconomically, the general equities markets fell hard and fast on April 3, indicating the tariff rates and breadth of countries impacted were more significant than the market anticipated ahead of the announcement. The drop in equities was the largest single day trading fall since March 2020. Since trade policy changes quickly, time will tell what happens next macroeconomically and agriculturally as we move through spring. If the new U.S. import tariffs remain and further retaliatory tariffs are implemented by countries we export to, our economy is likely to see higher inflation, increased unemployment and lower gross domestic product (GDP) in the near-term.

If you’d like to get into way more detail on all these numbers from macroeconomics to grain microeconomics, watch or listen to the recording of our most AgriMindset webinar: Adapting to Lower Prices and Tighter Margins. I provide an economic update walking through the Fed’s March monetary policy approach before I turn it over to our guest presenters Brian Split and Matt Bennett, grain marketing experts and co-founders of AgMarket.Net. They share key insights to help you navigate grain market volatility and maximize profitability in an uncertain 2025. Our webinar guests predicted that pesky corn acreage number exactly correctly pre-report release, and were fairly close on soybean acres, too. We talk about that and so much more in this timely webinar.

For monthly updates on ag commodities, inflation and economic trends and more, subscribe to Compeer’s Economic Minute e-newsletter and tune in regularly to our Agri-Mindset webinars.

The information provided is accurate to the best of the author’s knowledge at time of publishing. It is presented “as is” with no guarantee of completeness, accuracy or timeliness, and without warranty. The information is educational in nature and not investment, legal, accounting, tax or other advice of any kind.