USDA economists sees near-level prices for 2019 year
Washington, D.C. – “A lot has happened in the past year,” commented USDA Chief Economist Robert Johansson during the 2019 USDA Agriculture Outlook Forum.
Johansson noted issues from domestic policy in the form of the farm bill to global economic factors have all influenced the U.S. agriculture industry, and as he looks to the future, agriculture will continue to be influenced by a variety of factors.
Starting from the global scale, Johansson explained slowed economic growth around the world through 2019-20 will equate to weakening trade.
“In January, IMF projected slower economic growth in 2019 and 2020 that equals a loss of about $700 billion over the next four years, and half of that is in emerging economies,” he described. “There’s also weakening in trade policies and concerns about China that come to the forefront.”
Johansson continued, “On the brighter side, our U.S. economy remains strong, supported by strong labor markets and healthy consumer spending.”
The result is a strong U.S. dollar, which negatively impacts the volatile markets and loose monetary policy around the world.
“Within the last six months, growth in dollar strength has slackened, but low commodity prices continue to weigh on farm income,” Johansson added, noting the trend has been in place since 2013.
Within the agriculture industry, net farm income for 2019 is expected to rise slightly, but total net farm income for the next 10 years is expected to remain below $80 billion. The figure comes in far below the $113 billion seen in 2013.
“As farm income has fallen, farm equity has also come down but only five percent over the last couple of years,” Johansson explained. “Farm equity is stabilized by high land values. While farm income has come down, farm equity has historically remained strong.”
Working capital on farms has fallen by 70 percent since 2012, which means total debt is also approaching record levels across the U.S. In addition, real estate debt reached a record high last year.
“Overall, financial solvency is firm, and debt-to-asset ratios are below 15 percent, at 13.5 percent,” he said, adding a low debt-to-asset ratio is positive for the industry. “We are, however, paying close attention to debt financing, which has been rising and reached 25 percent in 2018.”
While U.S. farms are still a long way from levels reached in the 1980s for both debt-to-asset ratio and debt financing, rising debt numbers cause cash flow issues for producers and will be carefully watched, Johansson said.
He commented, “It is clear the farm crisis from three decades ago still carries relevance. Both interest rates and inflation remain low, which helps to maintain farmland values. Fixed debt has generally replaced variable debt, and bank and farms entered this downturn in healthier condition overall.”
Johansson noted, despite uncertainty across the board, the agriculture industry remains overall positive.
“The CME Purdue index of farmer optimism for economic opportunities has been up and down this year, and currently optimism is up 6.5 percent compared to this time last year,” he said. “Optimism typically follows corn prices, though, and that remains true.”
Across the broader economy, optimism is down for other market participants, however.
For row crop producers across the U.S., market uncertainties, particularly as they relate to trade, continue to weigh heavily on markets.
“Questions about trade, policy, weather, markets and more all have an impact on what farmers plan to do,” Johansson described. “The outlook is less certain now than in 1996, when the first Freedom to Farm Act passed.”
Further, Johansson forecasted a general trend of declining real ag prices over the next decade.
“When we account for inflation, the trend will be a continued decline in agricultural prices,” he said. “Production is growing faster than global demand.”
As a result of productivity increases, corn production has grown by 400 percent while prices have fallen 60 percent. Similar trends are seen in wheat and soybean production.
“Stocks have also grown relative to demand in several commodities,” Johansson continued. “We saw growth following the 2012 drought, but we have seen tightening markets for corn and wheat in the last decade.”
Tightened supplies for corn and soybeans are expected, and production will continue to outpace supply, Johansson added, which will support prices.
Johansson noted overall corn prices are expected to be up only a nickel a bushel. Wheat prices are expected to reach $5.20 per bushel, as well.
“Expanding stocks of wheat and soybeans, as well as tightening corn stocks, will influence prices,” he commented.
With feed prices playing a significant role in livestock price forecasts, Johansson said, “Corn prices are high for 2018-19 and 2019-20, but lower prices for soybeans in 2019 will offset higher corn prices.”
“Animal production is characterized by amazing productivity and declines in real prices, just like our crop prices,” Johansson said. “Beef, chicken, pork and milk prices have fallen by more than 50 percent from 1960, and output has more than doubled.”
A trend of falling prices and increased production is expected in the next decade, as well.
“While growth in production will likely continue, we see mixed outlook for livestock,” he commented. “Fed steer prices are up 1.2 percent year-over-year, supported by solid demand. Hog prices will fall 7.5. percent under production expansion, and prices for broilers are expected down 0.8 percent.”
Further, milk prices are expected to rise 6.5 percent on the year, meaning improved margins for dairy producers in 2019.
“We see total meat and poultry production will again hit records in 2019, with 105 billion pounds, and milk production is also projected to expand 1.1 percent,” Johansson explained.
Overall, for continued growth in the farm economy, Johansson said trade is essential for the agriculture industry.
“U.S. ag exports are forecast at $141.5 billion, down $1.9 billion from 2018,” he said. “Many countries are willing to compete for these sales.”
Over the long-term, USDA projects exports will continue to grow, supported by international demand for livestock products as per capita income increases in emerging markets.
Johansson summarized, “Success in the $700-plus billion global marketplace will depend on access.”
Saige Albert is managing editor of the Wyoming Livestock Roundup. Send comments on this article to firstname.lastname@example.org.