Quarterly Ag Report: CoBank Knowledge Exchange provides updates and outlook on first half of the year
On April 11, CoBank Knowledge Exchange (CoBank) published their first quarterly report of 2024, which provides updates and outlooks on the U.S. economy and agriculture industry.
Overall, the report notes strong labor and consumer spending have led many experts to dismiss their earlier concerns of a recession. But, there is still some unease regarding the U.S. economy, including higher-than-ideal inflation and interest rates.
“The Federal Reserve has assured interest rate cuts are coming this year. However, it also appears to be admitting inflation will take longer to subside than it had hoped for earlier and interest rates will not return to their pre-pandemic lows in the foreseeable future,” reports CoBank.
Beef, pork and poultry
For beef, CoBank Lead Economist for Animal Protein Brian Earnest notes high consumer demand and a 70-year U.S. cattle inventory low have resulted in record-high prices across the board, and these prices are expected to remain high.
“Fed cattle futures have jumped into the $180s, the boxed beef cutout averaged a 7.6 percent premium year-over-year during the first quarter and retail beef prices were up eight percent in February,” reports Earnest.
“For now, lean beef trim values have skyrocketed, up more than 30 percent from where they started this year,” he continues. “Lean beef imports are projected to rise as well, and it is all but certain after two years as a net beef exporter, the U.S. beef trade deficit will widen in 2024.”
Additionally, Earnest notes rebuilding of the U.S. beef herd will remain slow due to drought-stricken pastures and financial stress for upstream producers.
“Pork’s big story in recent years has been lack of market strength for pork products – outside of bacon – at retail outlets,” he says. “This, combined with retail prices of processed products lurching higher in recent years, has discouraged disappearance and pressured producer returns.”
Despite this, pork production has started to turn a profit again after 17 consecutive months in the red, with margins improving for wean-to-finish operations.
Earnest cites Iowa State University estimates which show wean-to-finish operations were making a profit of nearly $5.50 per head in February, following a $39 per head loss the year before.
Domestic and foreign demand of pork has improved as well, increasing 7.5 percent or 500 million pounds in 2023, and the U.S. Department of Agriculture (USDA) estimates another four percent increase in 2024, according to the CoBank report.
“The bottom line for pork margins is the trend appears to finally be headed in the right direction,” Earnest says.
In 2023, the broiler industry faced elevated input costs, weaker demand and impacts of highly pathogenic avian influenza (HPAI), but CoBank believes this will straighten out in 2024.
Earnest also points out input costs are easing and broiler prices are appreciating. However, foreign demand growth has been slow, with the cumulative export volume down three percent.
“HPAI continues to threaten access to foreign markets, despite limited instances in domestic broiler flocks,” Earnest remarks. “Fortunately, domestic markets are clamoring to value protein, and leg quarter values are up more than 30 percent year-over-year.”
Dairy
In the dairy sector, futures prices indicate 2024 could be the third-highest milk price year on record, according to Corey Geiger, CoBank’s lead economist for dairy production and processing.
However, Geiger notes international and domestic demand has been sluggish due to four years of inflation, which has slowed the growth of dairy product sales.
“The prospect of new plant capacity coming online, and with it more cheese trying to find a consumer home later this year, has been putting downward pressure on Class III milk prices,” Geiger explains.
“On the flip side, strong butter demand, even with near-record retail prices, has lifted Class IV milk prospects higher,” he adds. “Together, cheese and butter prospects have inverted the Class III to Class IV price relationship. This unusual market situation could persist throughout 2024 and well into 2025, delivering lower milk prices to farmers in high cheese production regions such as the Upper Midwest.”
Grains, farm supplies
and biofuels
CoBank reports grain and oilseed prices have continued their downward trend during the first quarter of 2024 due to a strong U.S. dollar, the South American harvest and an ample domestic inventory.
“USDA’s Prospective Plantings report indicated farmers will be cutting back on planted acreage this spring. Corn, grain sorghum, barley and oats all saw major reductions since last year, while USDA is projecting increases for soybeans, cotton, spring wheat and durum wheat this year,” explains CoBank Lead Economist for Grains and Oilseeds Tanner Ehmke.
However, Ehmke points out unpredictable weather and market conditions might shift the balance this spring. In fact, he notes low water levels on the Mississippi River are already raising concerns of slower grain and oilseed shipments in the months ahead.
He also notes two percent year-over-year decrease in total prospective plantings will lead to slightly lower demand of fertilizer and other inputs during the spring planting season for ag retailers and distributers.
CoBank Lead Economist of Farm Supply and Biofuels Jacqui Fatka states, “Sliding commodity prices, paired with farm input costs creeping slightly higher, will limit farm-level profitability heading into the 2024 growing season.”
She notes climbing production costs and tighter balance sheets will likely limit an spending on farm supplies.
Fatka also reports the 2024 ethanol outlook remains positive as plants capitalize on lower corn prices and improved margins.
“Rising E15 and E85 blending enables the ethanol industry to hold the line in an otherwise declining gasoline market,” she says. “Renewable diesel continues to provide solid demand for soybean oil and other feedstocks including animal fats and corn oil.”
Cotton, rice and sugar
According to Ehmke, cotton prices rose 15 percent during the first quarter of 2024, which changed the outlook for planting this spring. Now, the USDA projects cotton acreage to expand 4.3 percent year-over-year.
Emhke explains tight domestic supplies – a result of last year’s small harvest – drove recent cotton prices higher, and lack of supplies has impacted U.S. cotton exports. Brazil is now on its way to replace the U.S. as the world’s largest cotton exporter.
“The prospects of expanded cotton acreage in both the U.S. and Brazil portend a price war later in the year as they compete for global market share,” Ehmke suggests.
Likewise, sugar prices have climbed 8.8 percent as a result of El Niño weather conditions negatively impacting production in key growing regions like Brazil, India and Mexico.
The resulting drop in raw sugar imports from neighboring Mexico has tightened the stocks-to-use ratio for the 2023-24 marketing year, so USDA announced it would expand the tariff rate quota to increase the amount of raw sugar imported under low tariffs, according to Ehmke.
“The collapse of the Francis Scott Key Bridge in Baltimore may have the greatest impact on sugar compared to other agricultural commodities,” he notes. “In 2023, Baltimore was the top port for handling sugar, accounting for 21 percent of all U.S. sugar imports.”
On the other hand, rice prices fell 8.4 percent over the past three months. But, despite the recent drop in prices, rice still holds a historically large price premium over soybeans, according to Ehmke.
“U.S. rice inventories totaled 100.5 million per hundredweight on March 1, rising 31 percent year-over-year due to last fall’s bigger harvest,” he says. “The pace of disappearance also jumped 30 percent thanks to a swift export program which preceded the arrival of the Brazilian harvest. Strong rice exports have underpinned U.S. prices, enticing more planted rice acres this spring.”
Hannah Bugas is the managing editor of the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.
