USDA’s forecast projects production increases for livestock prices
Arlington, Va. – “Our theme this year is ‘Roots of Prosperity,’” USDA Chief Economist Robert Johansson said during his 2018 Agricultural Economic and Foreign Trade Outlook presentation at the 2018 Agricultural Outlook Forum. “We are heading back out to farmers and see what their roots are in the countryside.”
The annual Ag Outlook Forum provides a venue for USDA to discuss their challenges but also look at opportunities for the future.
“For the U.S., we know producers have many producers looking forward to the 2018 crop year,” Johansson commented, listing the farm bill, budgets, trade and more as of concern for producers. “We can see that consumers, business, home builders and bankers all indicate similar feelings of optimism regarding the future economy as compared to last year.”
“Farmers are a little bit more reflective,” he added.
Farm income
Overall, for 2018, farm income is expected to fall, mirroring declining commodity prices.
“Productivity is outpacing population growth and food demand, which has resulted in falling real food prices for the past half century,” Johansson explained. “Since 1960, soybean production has increased more than 1,000 percent, while real soybean prices have fallen by 47 percent.”
Corn production has grown by more than 400 percent, and prices have fallen by more than 60 percent.
For farmers and ranchers, today’s ag economy is also different from when the last farm bill was debated.
“We can see real net farm income falling in real terms, and it’s likely to remain below its 2013 peak for a while. Looking forward, we expect it to remain flat,” Johansson said. “There are several things that might change this outlook, but a few weeks ago, USDA’s Economic Research Service estimated 2018 would be a little bit lower, with net farm income falling to $59.5 billion.”
Complicating factors
While incomes are projected to drop, Johansson also noted several factors might stimulate income potential for farms.
“We know cheaper food benefits global population demand but also benefits income for farmers,” he explained. “There are some things, of course, that can change that. First, improved global economic growth will mean more middle class families, which will improve demand.”
Johansson also cited improve trade agreements that open markets and increase demand for U.S. product as positive impacts on potential earnings for U.S. farmers and ranchers.
“Weather conditions will also impact crops and could either pick up or pull down prices,” Johansson said. “Farm policies in some countries could affect prices. The new farm bill could look to remedy income gaps through its programs.”
Demand
“The prospects look good for increased demand,” Johansson said, noted IMF’s forecasts were sharply increased in January, which means the purchasing power of countries around the world has expanded by $325 billion, compared to December estimates.
Growth in demand comes from developing countries, where middle class income is projected to continue to grow over the next 10 years, particularly in livestock and dairy products and those products associated with feeding livestock and dairy animals.
“Stronger growth overseas means increased stability for other countries, which makes them a more stable investment,” Johansson explained.
As other countries become more stable, they also are capable of purchasing more U.S. goods, further increasing demand.
The dollar has also depreciated as compared to other countries around the world, also leading to favorable conditions for U.S. exports. At the same time, other countries’ currencies have appreciated.
“Increase in ag trade remains a key component in the global economic economy,” Johansson said. “In general, improved global economic condition and a slight weakening of the U.S. dollar resulted in a $10.9 billion increase in Fiscal Year (FY) 2017 increase compared to FY 2016.”
He continued, “FY 2018 exports are predicted narrow just slightly.”
Free trade agreements have become “increasingly important,” according to Johansson.
Livestock outlook
“The outlook for livestock and dairy is for continued increases in livestock and dairy production going forward,” Johansson summarized.
Continued low feed costs support continued increases, and total meat and poultry production is expected to hit nearly 104 billion pounds in 2018, with increases in all three major categories.
Beef production is projected to jump 5.9 percent, pork production, 5.1 percent and broiler production by 21 percent. Milk production is also expected to increase 1.5 percent to a record 218.7 billion pounds in 2018, as the result of modern herd expansion, as well as an increase in milk produced per cow.
“Beef production is expected to grow rapidly in the near-term, as balanced growth is seen between supplies and demand,” Johansson said, noting production exceeds previous years. “However, while supplies of cattle have increased rapidly, we’ve seen increasing drought across the Southern Plains, which increases concern for timing of placement in feedlots as well as breeding decisions in the coming months.”
Johansson added, however, that drought conditions are far less severe than the harsh drought experienced in 2012.
USDA forecasted steer prices in 2018 to decline by 1.9 percent to $119.25 per hundredweight. Hog prices and poultry prices are expected to take 4.9 and 2.9 percent hits, respectively while milk production is forecasted to take a nine percent blow.
“Foreign markets are increasingly important for beef, pork and poultry, and they will continue to be important to offset increased production and support prices,” Johansson commented.
Farm economy
Currently, Johansson said the farm economy is likely to remain flat, but policy and regulatory changes improves the overall outlook for the farm economy.
Debt to asset ratios continue to be low, as the result of steady asset value, continuing firm land values and more.
“The debt to asset ratio has been slightly rising, but it’s unlikely to near the level seen in 1985,” Johansson explained, but the more concerning factor is working capital’s decline of 65 percent since 2012. “Producers are more vulnerable to continued low commodity prices.”
Saige Albert is managing editor of the Wyoming Livestock Roundup. Send comments on this article to saige@wylr.net.
