Coble: Farm economy is moving sideways and farm bill debates impact the future

Nashville, Tenn. – “Let me cut to the chase when we talk about crop markets,” said Keith Coble, ag economist at Mississippi State University during the 2017 American Farm Bureau Federation annual meeting. “When we look at the springtime futures price expectations for corn, soybeans, wheat and rice at harvest time, I see a lot of sideways motion.”

While sideways motion isn’t necessarily  negative, Coble noted it is not positive news in light of today’s crop markets.

“If we’re talking about $3.86 corn, sideways motion isn’t great,” he said. “If we were moving sideways with $5.50 corn, we’d think it was wonderful, but that’s not where we’re at.”

Overall, Coble said the gist of crop market conversations today is no significant upward or downward movement can be expected in the short-term.

Fundamentals

Moving through 2018, Coble said production, coupled with stocks, impact the future of prices.

“If we look at 2017 yields, we have had several years in a row where we have not beaten the trend line by a lot, but we have beaten it by some. We look at our production, and acreage is driving our production number,” Coble added.

Corn production has dropped from three years ago, and stocks are coming down slightly – both in the U.S. and globally – but stocks are overall very large, he said.

“For soybeans, we see a strong trend in soybean acreage,” he said. “We see our production increasing as well, and our ending stocks are building up, too.”

“The bottom line story for our commodity situation is commodity trends are terribly flat,” Coble said. “This is not the happy story I’d like to tell farmers.”

Farm bill

Commodity markets will play an important role in the drafting of the next farm bill, as well, according to Coble.

“Pushing the farm bill through in an election year is a real challenge, but it’s an ambition,” he said.

In talking about the farm bill, Coble noted a majority of the spending in the farm bill is spent in nutrition assistance. Spending in nutrition has declined over the past several years, but that does not make the funds available for agriculture or conservation programs, he said.

“The percent of the USDA budget spent on nutrition has declined but not in the sense that it brings up that money to be spent on something else,” Coble explained. “The total money in effect evaporates. It is not there to use as the House and Senate Ag Committees write the farm bill.”

Various titles in the farm bill impact commodity markets directly. In particular, the renewable fuel standard, for example, affects the price of commodities in the U.S.

“There are a lot of discussions going on in this farm bill debate, and the needs of the cotton and dairy industry, as well as how we can fix their efforts and what can be done to fix these programs to, at the very least, increase the baseline so there is money in programs going forward,” he says.

Other programs

Coble also addressed the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs for crop insurance.

“PLC is more like our traditional programs, and ARC is a program which incorporates county yields using an Olympic average,” he said.

An Olympic average eliminates the high and low observations from a set of data and averages the rest of the data in the set, a practice which eliminates the influence of outliers in the data set.

ARC was originally attractive to corn and soybean farmers because producers were able to make money through the use of the Olympic average, but moving forward, that trend will no longer be true, according to Coble’s analysis.

Further, the Congressional  Budget Office (CBO) is asked to utilize 10-year commodity price forecasts to set baselines for ARC, knowing full-well that there will be market impacts and changes over that period, which makes it even more difficult to find money to change the programs, Coble said.

Using the Olympic average, Coble utilized prices as predicted by CBO, and he found average corn payments went from $64 to $11 to zero dollars, using CBO expectations and moving the Olympic average forward.

“This is the future of the ARC program that we’re faced with, if it is not modified in some form or fashion,” he said. “There are a lot of suggestions for modifying ARC, and all of them, if they up these numbers, will cost more when CBO scores it.”

Crop insurance

Coble also looked at crop insurance, including what he calls the subsidy bulls-eye.

“Because the money is now in crop insurance, it is the program that has the biggest bulls-eye on it,” he said.

One possibility that may occur caps subsidies at $40,000 per farmer in a year. Another is to reduce, eliminate or modify subsidy on up-side price protection in revenue insurance, applying limits and a few other things, Coble explained.

To determine potential impacts from capping subsidies, Coble calculated the average subsidy per acre and divided that into $40,000 to determine how fast and how many acres it takes the average farm with an average crop mix to hit the cap.

“We see that 3,000 acre farms are likely to hit those subsidy caps, unless they are in pasture and rangeland areas, and they’re very likely to hit them in the fruit and vegetable growing areas because they have high value commodities that have a lot of subsidy per acre,” Coble said.

Big picture story

“We’re sitting here looking at a sideways market on almost all of these commodities, but I want to end with the note that, in all likelihood, there will be something that happens in 2018 that moves these markets in some of these commodities,” Coble said.

Whether drought, impressive growing years, international trade issues, interest rates, weather or other factors, Coble said, “Something will make these projection wrong. Be prepared for them going in the good direction or the bad direction.”

Saige Albert is managing editor of the Wyoming Livestock Roundup. Send comments on this article to saige@wylr.net.