U.S. agriculture will continue to face challenges this year as slowing domestic and global economic growth rates, trade talks and weather cast uncertainty in the short- and long-term markets, according to CoBank’s latest “Quarterly Rural Economic Review.”
The bank said U.S. commodity markets remain focused on potential progress in U.S.-China negotiations and ratification of the U.S.-Mexico-Canada Agreement (USMCA) pending the removal of U.S. steel and aluminum tariffs. Current trade disputes and global acreage shifts for this crop year may ease some downward pressures on prices, it said.
A slowing global economy may also force the animal protein and dairy sectors to scale back planned production increases as the year unfolds, the bank noted.
The report indicated that as global and U.S. economic growth has slowed, financial conditions in agriculture have remained highly variable across commodities and regions.
“U.S. agricultural producers and markets are in for a challenging year, with economic uncertainty,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange Division. “There are a few bright spots, but growth is likely to average 2.0-2.5% with significant volatility in quarterly growth.”
The report relayed that world economic growth has slowed from 3.8% in 2017 and 2018 and will likely average 3.0-3.5%. China’s economy continues to slow to 6.6% — the slowest growth since 1990 — as reduced trade flows and an inability to stimulate domestic consumption hamper growth potential. Europe’s growth potential also has declined as uncertainties over Brexit and reduced trade flows to Asia have dampened optimism.
CoBank pointed out that economic growth in the U.S. slowed significantly in the fourth quarter to a 2.2% annual rate, which compares to 3-4% growth in the previous six months. So far in 2019, first-quarter growth was significantly affected by the government shutdown and ongoing trade disruptions, the bank said.
CoBank quarterly economic reviews provide market outlooks for several topics and industries, including: global and U.S. economic environments, U.S. agricultural markets and rural infrastructure industries.
Grains, oilseeds and biofuels
As trade deals continue to be ironed out, CoBank said a resolution of current trade disputes and global acreage shifts could influence U.S. producers. Sharp declines in farm income since 2014 have resulted in significant reductions in working capital of nearly 70% and rising levels of farm debt of nearly 24%. Now, devastating flooding in Nebraska and Iowa threatens the livelihoods of many producers and will impede agricultural transportation and processing for months, the bank said.
- Corn. Domestic corn demand dipped by 2% despite continued growth in animal protein supplies. Ethanol remains a weak spot, but feed demand and corn exports should remain strong.
- Soybeans. The U.S.-China trade dispute is easing up, with reports of a pledge from China to buy soybeans. U.S. exports continue to lag behind last year, but domestic demand remains robust.
- Wheat. Domestic demand is in line with U.S. Department of Agriculture expectations; wheat demand is strengthening on the export front, with commitments for 2019 coming in just ahead of last year’s levels.
- Ethanol. Ethanol producer margins have improved slightly from lows this winter, with supply and demand balanced by a reduction in supply.
CoBank reported that poor fall weather and a wet start to the year have affected the Midwest, resulting in delayed fieldwork and decisions on seed and fertilizer.
“Without knowing what farmers will plant or what their fertilizer plans will be, ag retailers have an elevated risk of having too much or too little inventory of a product,” CoBank said.
Some good news for farmers is that fertilizer prices have largely declined from recent highs. In fact, the report said urea and diammonium phosphate prices in New Orleans, La., are now approximately 20% below highs set last fall. Still, potash prices remain robust on tighter supplies. Seasonal upticks in demand should increase prices this spring, CoBank reported.
Animal protein supplies grew less than expected in 2018, primarily driven by a slowdown in fourth-quarter chicken production, the report said. Overall, animal protein production grew 2.5%. Pork led the way with nearly 3% growth, and beef and chicken followed at 2.5% and just over 2%, respectively.
“While supply isn’t expected to change from 2018 levels, domestic and international demand is uncertain,” CoBank said.
Trade negotiations with Asian markets may provide export opportunities. If USMCA is not ratified, however, that could also impair trade flows, the bank noted.
- Pork. Trade and exports are important as domestic consumption remains between 46 and 52 lb. per person. Factors like African swine fever and trade negotiations will influence U.S. pork exports.
- Chicken. The U.S. chicken sector is seeing a building boom that will continue through the spring of 2020, with expected production increases of 1.5% in 2019, down from 2.2% in 2018.
- Beef. The U.S. beef sector outlook reflects a balance of supply and demand and anticipates continued production growth. U.S. exports have seen remarkable growth of 40% since 2015.
On the dairy front, U.S. milk production totaled 217.5 billion lb. in 2018 — a 0.9% increase over 2017, compared to a typical increase of 1.5%. Production was driven by an additional 250 lb. per cow despite there being 49,000 fewer cows in the national herd.
CoBank said slower growth rates in milk production translate to less excess milk being dried into powder. Cheese inventories are about 5% higher compared to last year despite slowed production in December. Relatively low cheese and whey prices offsetting somewhat higher powder and stable butter prices will result in farm milk prices remaining in the current range, the bank said.