Crop forecasts CoBank predicts 2018 challenges
CoBank believes current market conditions could mean 2018 will be a difficult year for crop production agriculture. In an October 2017 quarterly review, CoBank looked at the global economic environment, U.S. economic environment and how they impact U.S. agriculture markets.
According to the review, “With the global economy on sound footing, global growth rates are likely to remain near 2017 levels, but a broader spectrum of countries will drive the rates.”
While U.S. growth may be reduced due to the recent hurricanes, Europe is improving growth, but political negotiations could change the direction of their growth quickly.
“Other countries, including China, Japan, Canada and Mexico, are also increasing growth, despite natural disasters and political issues,” says CoBank, adding, “Political uncertainty is significant in many regions, and the continuing trend toward nationalism and rising protectionist sentiment cannot be ignored.”
A few key factors of the global economic environment include maintaining momentum through fiscal stimulus and reducing monetary policies in central banks.
“Tax reform and North American Free Trade Agreement renegotiations arguably pose the most significant potential opportunity and risk for rural agriculture and infrastructure businesses,” notes CoBank.
In the U.S., the economy saw significant acceleration in the second quarter with a three percent annual growth rate. However, CoBank says economic growth will be difficult to sustain beyond 2.5 percent.
CoBank targeted consumer spending, lack of adjustment in inventories, political uncertainties and natural disasters like hurricanes Harvey and Irma as contributing factors for reduced growth.
“Trade actions and the ability of Congress and the administration to resolve issues on tax cuts, government spending and the debt ceiling is the key to solving political uncertainties,” CoBank says.
In the quarterly report, CoBank sees significant variability in economic conditions across commodities and regions, and the areas of greatest stress may be in the Upper Midwest and Corn Belt.
Regardless, the recent weakness of the U.S. dollar is a benefit for grain, oilseed and ethanol producers.
“U.S. exporters are facing increased competition from South America and Russia, but consumers are still able to purchase affordable grain, oilseed and ethanol from the U.S.,” states CoBank.
For corn, domestic demand remains steady, and exports are up 20 percent compared to 2015-16.
“Lower yields are projected due to regional dryness, while areas with projected record yields will face storage challenges compared to 2016,” notes CoBank.
Spring wheat production will likely be at its lowest level in the last 15 years, and planted acreage for winter wheat is expected to decrease five percent because farmers struggle to profitably grow wheat, CoBank states.
“Russia is projected to produce another record crop in 2017, which puts pressure on wheat prices in the U.S. Yet, production problems in Australia could increase U.S. exports to Asia in the last quarter of 2017,” CoBank says.
Beef and farm supply
According to CoBank, the U.S. beef cattle herd continues to expand and will result in steady increases for beef output through 2019.
“Beef production is on pace to increase four percent in 2017 and is forecasted to jump another three to five percent in 2018. The scale and duration of current growth will be determined by cow/calf profitability, along with pasture and range conditions,” CoBank says.
Cattle feeders encountered high profits at the start of 2017, but fall cattle prices are under pressure, notes CoBank, adding, strong demand for fall 2017 yearling cattle has supported feeder cattle prices.
“Similarly, while 87 percent of U.S. beef is consumed domestically, beef exports have increased 14.5 percent from 2016 and are expected to increase eight percent annually,” adds CoBank.
On the other hand, farm supplies, like fertilizer, are struggling with overcapacity, due to overabundance and low prices in the market.
CoBank believes, before the end of the year, fertilizer margins will begin to improve as farmers purchase more fertilizer for fall application.
“New fertilizer production capacity in the U.S. has been a boon to farmers, but the resulting oversupply has quashed plans for future expansions among manufacturers worldwide,” CoBank says.
Hurricane Harvey disrupted railroad transportation of fertilizer in Texas, but fertilizer production and transportation was not permanently damaged. Impacts from hurricane Irma are still being assessed in Florida, according to CoBank.
CoBank also says, “Farmers will have a bigger financial cushion for input purchases because the USDA reported net farm income will increase in 2017.”
Heather Loraas is assistant editor of the Wyoming Livestock Roundup and can be reached at firstname.lastname@example.org