Johansson sees positive ag outlookWritten by Natasha Wheeler
Arlington, Va. – USDA Chief Economist Robert Johansson addressed the outlook for U.S. agriculture in Arlington, Va. at the 91st USDA Agricultural Outlook Forum on Feb 19.
“Overall, the forecast for the coming production year is bright,” he stated.
Reviewing short-term factors that affect the agricultural economy, Johansson began by discussing the prices of crude oil and natural gas.
“Natural gas prices are much lower today than expected just a few years ago, due to the large increase in domestic production of shale gas,” he explained.
The recent fall of crude oil has dropped even more dramatically, falling by 50 percent since 2013.
“Lower energy prices are helping farms in many ways,” he commented.
Inputs such as fertilizer, pesticides and diesel have all become less expensive.
“Transportation costs for delivering inputs to farms and shipping commodities are now lower than expected just months ago, as are heating and cooling costs for livestock and drying costs for grain,” Johansson added.
Although reduced costs of petroleum make biofuels less attractive, ethanol provides a relatively inexpensive additive for oxygen and octane in E10 gasoline.
“Increased gasoline demand will keep ethanol production high,” Johansson predicted.
Decreased transportation costs are also projected for 2015, and resolutions are expected for disputes that have hindered trade to global markets.
“The West Coast port labor negotiations are progressing,” he stated. “Resolution of those negotiations will untangle the backlog of containerized shipping into and out of the West Coast ports.”
Valued at over $37 billion, more than 60 percent of U.S. containerized agricultural exports move through those ports.
Since Johansson’s presentation, the dispute has been solved with a five-year agreement.
“Rail transport in the upper Midwest is also expected to return to normal in 2015,” he noted.
Extensive track maintenance, cold temperatures and increased traffic from the Bakken Shale formation have caused rail congestion in the last year.
“Since November, rail freight costs have returned to more typical levels and the amount of grain and oilseeds shipped is approaching record levels,” he explained.
The next short-term challenge Johansson addressed was the strength of the U.S. dollar, which has been increasing.
“Over the past year, the dollar has increased in value by eight percent relative to the British pound, three percent relative to the Chinese yuan, 13 percent relative to the Canadian dollar and 19 percent relative to the euro,” he said.
This trend makes U.S. exports more expensive for foreign customers, but it also makes imports cheaper.
“The dollar appreciation will likely continue into 2015, although at a more moderate pace,” he estimated.
Except for California, weather conditions are also improving in the U.S.
“Approximately two-thirds of California is now experiencing extreme to exceptional drought, up 60 percent from last year at this time,” he commented.
Unless precipitation increases significantly, producers in that part of the country will continue to face reduced yields and other challenges.
“The final short-run factor that I will discuss is the new Farm Bill programs that were implemented last year,” commented Johansson. “The new programs have been developed and moved into implementation quickly and efficiently.”
Moving on to U.S. agricultural export statistics, Johansson revealed an increasingly competitive export market.
“Strong prices over the past 10 years helped boost U.S. agricultural trade values, which have more than doubled since the mid-2000s, growing at an average rate of over 8.5 percent per year,” he explained.
U.S. agricultural exports are forecast at $141.5 billion for fiscal year 2015 (FY2015), the second highest year on record.
“The FY2015 forecast for grain and feed exports is down to $29.9 billion on lower volumes of wheat, corn, feed and fodders, as well as increased competition from other suppliers,” he noted.
Oilseed and product exports are forecast down in value but up in volume at $30.9 billion, soybean exports are expected to reach $1.5 billion, and cotton exports are expected to drop to $3.7 billion.
“The export forecast for livestock, poultry and dairy was lowered $2 billion from FY2014 to $31.8 billion this year, with reductions to poultry, pork, dairy and other livestock products outweighing gains to beef and veal,” he stated.
Investment and expansion has been seen in the production of many crops, due to the high commodity prices in the last several years.
“Larger stocks domestically and globally mean prices are likely to be less sensitive to adverse market conditions and could stabilize price volatility, even if a major production shortfall were to occur in 2015,” he noted.
Livestock projections indicate that total meat and poultry will be at a record high of 95 billion pounds in the coming year, mostly due to pork and broiler production.
Milk production is also expected to reach record highs.
“Prospects for expansion in the beef sector have been constrained by the increasingly tight cattle supplies,” he commented. “The inventory reached a cyclical low as of Jan. 1, 2014, with the lowest cattle and calf inventory since 1952.”
A turnaround in the cycle does appear to be coming about, as the latest National Agricultural Statistics Service (NASS) cattle inventory in January 2015 recorded the first increase in herd size since 2007.
“U.S. exports continue to be strong for meat and poultry,” Johansson stated.
Beef and veal exports, though expected to fall slightly in 2015, are expected to grow almost 38 percent over the next 10 years.
“Overall, the financial health of the agricultural sector is strong as it enters a period of lower crop prices,” Johansson explained.
Farm sector strength is reflected in the low debt-to-asset ratio in the U.S., with the values, in real terms, of machinery, inventory and land held by producers at record levels going into 2015.
“Those measures indicate the financial health of the agricultural sector is strong,” he stated.
Johansson concluded by projecting an optimistic overview overall throughout the agricultural sectors and added, “Lastly, the technological advances in our ability to collect, process and report data offer new ways to optimize field production, improve risk management and enhance market transparency.”
“Since 1948, U.S. producers have more than doubled the value of output and total factor productivity per dollar of input,” stated USDA Chief Economist Robert Johansson.
In 1954, the number of tractors eclipsed the number of horses and mules on farms, and the following decade saw the implementation of combine harvesters and milking machines.
“The 1960s marked the beginning of the green revolution,” he noted. “Famers began using satellite technology for precision agriculture in the early 1990s.”
In 1997, weed- and insect-resistant biotech seeds became available, and drought-resistant crops were developed in the 2000s.
“There are other advances on the horizon,” Johansson said.