Agriculture in Focus: The Impacts of AI, Strong Dollar and Potential Tariffs in 2025
EXPERT INSIGHTS: Travis Kaul, Director of Agriculture Banking
The agriculture sector is a vital part of the U.S. economy, contributing roughly $1.5 trillion to the GDP and employing more than 10% of the workforce. It’s also the economic backbone of small towns and rural communities. As one of the nation’s top agriculture lenders, Umpqua Bank is proud to support producers across our footprint, especially as they continue to navigate the lingering impacts of inflation, interest rates and market upheavals of recent years.
In this Q&A, Travis Kaul, Umpqua Bank’s Director of Agriculture Banking, discusses issues on the horizon as 2024 comes to a close, and how producers can navigate challenges and opportunities ahead.
Q: According to Umpqua’s latest Business Barometer, inflation and interest rates were top concerns for agriculture businesses in 2024. What are farmers concerned about looking ahead to 2025?
Fluctuating economic conditions remain a significant concern for our customers, particularly for farmers and ranch owners who need to protect their margins. As they prepare for the new year, these operators are increasingly prioritizing efficiency to navigate potential financial challenges.
The agriculture sector is also experiencing a tight labor market, as well as increased labor costs in states like Oregon and Washington, which both recently passed overtime laws for producers. Farmers are incredibly resilient and are finding ways to navigate these long-term challenges. Automation will likely continue to accelerate as technology becomes both more sophisticated and less expensive. Many are already seeking technological solutions, including AI, to do labor-intensive tasks and to improve overall productivity.
Q: What technologies do you believe will be most transformative for agriculture producers in 2025 and beyond?
Customers are increasingly exploring AI technologies to enhance efficiency in agriculture. Innovations such as variable rate fertilizers and targeted spraying techniques are helping to reduce input costs, improve productivity and enhance crop yields. The potential for AI to automate labor-intensive tasks, especially in fruit harvesting, is also expected to be transformative for the sector. These technologies also address the pressing need for sustainable practices.
Q: Our farm customers are facing a variety of challenges and opportunities depending on their industry. What are some examples of the issues they’re raising with you across different agricultural sectors?
The strong U.S. dollar, which is likely to continue as a policy priority under the next Presidential Administration, has adversely impacted export prices, particularly for commodities like wheat, making it essential for farmers to consider financial strategies that address these challenges. While dollar appreciation can hurt exports, it may also lower the cost of imported agricultural inputs, such as fertilizers and machinery, providing some relief to farmers by reducing operational costs.
Meanwhile, the cattle sector has performed exceptionally well due to strong demand for protein and a reduced herd size, which has driven prices up. Conversely, the hay sector has struggled, partly due to good moisture conditions leading to increased forage availability. These fluctuations underscore the importance of diversification and proactive risk management.
Q: How is Umpqua helping its customers navigate some of these challenges and opportunities?
Umpqua is a top 10 agriculture lender in the U.S., with deep experience banking every commodity across the West. As we look to 2025, our bankers are actively advising customers affected by a strong dollar and other unknowns to consider crop insurance as a safety net against unexpected losses. This includes helping farmers understand the types of insurance available and how each can protect their investments. In terms of opportunities, we’re seeing an uptick in demand for equipment financing and increased efficiency. So, we’re taking a holistic look at customers’ financial situations to advise the most cost-effective way to achieve their goals.
In addition to experienced bankers, we employe a team of agriculture consultants who combine industry expertise with personalized financial guidance to help farmers and ranchers understand their unique situations. Our consultants work directly with customers to inform them of industry developments and market intelligence that impact their bottom lines and future planning. They’re evaluating operational risk management capacity and supporting bankers as they assess cash flow, debt management and identify cost-saving opportunities, particularly within fluctuating market conditions.
Q: How can agriculture businesses prepare for potential tariff impacts in the future?
Agriculture producers are very adept at navigating challenges, and I expect the impact of any new tariffs to be temporary. That said, there are a number of steps owners and operators can take. They can evaluate their international vulnerabilities to diversify their markets. They may also consider growing crops that are more suited for domestic consumption rather than relying on exports. For example, a wheat farmer might shift to growing specialty grains like spelt or quinoa that have gained popularity in health-conscious markets and are often sought after by local bakeries and health food stores. Staying informed about policy developments and market trends is crucial for strategic planning.
Q: As we look ahead to the new year, what key advice would you give to farmers and ranchers to help them navigate 2025?
Looking ahead to 2025, the key advice for ag producers is clear: protect margins, invest in efficiency mechanisms, secure commodity insurance and consult with tax advisors. By taking these proactive steps, they can position themselves for success in a challenging economic landscape. The future of agriculture is bright for those who adapt and innovate, ensuring they thrive in an ever-evolving market.
