U.S. agriculture will face challenges in 2019 as slowing domestic and global economic growth rates, trade talks continue, and weather casts uncertainty in the short- and long-term markets. U.S. commodity markets remain focused on potential progress in U.S.-China negotiations and the ratification of USMCA agreement 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, according to the economic outlook.
The report states that world economic growth has slowed from 3.8 percent in 2017 and 2018, and will likely average between 3 to 3.5 percent. China’s economy continues to slow to 6.6 percent — the slowest since 1990 — as reduced trade flows and inability to stimulate domestic consumption hamper growth potential. Europe’s growth potentials have also declined as uncertainties over Brexit.
Also noted is that economic growth in the U.S. slowed significantly in the fourth quarter to a 2.2 percent annual rate compared to the 3 to 4 percent growth in the previous six months. First quarter growth was significantly impacted by the government shutdown and ongoing trade disruptions.
Grains, Oilseeds and Biofuels
As trade deals continue to be ironed out, 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 percent and rising levels of farm debt of nearly 24 percent. Devastating flooding in Nebraska and Iowa now threatens the livelihood of many producers and will impede agricultural transportation and processing for months.
- Corn: Domestic corn demand dipped by 2 percent 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; domestic demand remains robust.
- Wheat: Domestic demand is in line with USDA expectations; wheat demand is strengthening on the export front with commitments for 2019 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.
Poor fall weather and a wet start to the year has impacted 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.
Fertilizer prices have largely declined from recent highs. Urea and DAP prices in New Orleans are now approximately 20 percent below highs set last fall. Potash prices remain robust on tighter supplies. Seasonal upticks in demand should increase prices this spring.
Animal protein supply grew less than expected in 2018. The primary driver was a slowdown in fourth quarter chicken production. Overall, animal protein production grew by 2.5 percent. Pork led the way with nearly 3 percent growth. Beef and chicken followed at 2.5 and just over 2 percent, respectively.
While supply isn’t expected to change from 2018 levels, domestic and international demand is uncertain. Trade negotiations with Asian markets will likely sway export opportunities. If the USMCA trade agreement is not ratified, it could also impair trade flows with these important markets.
- Pork: Trade and exports are important as domestic consumption remains between 46 and 52 pounds per person. Factors including 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 percent in 2019, down from 2.2 percent 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 percent since 2015.
U.S. milk production totaled 217.5 billion pounds in 2018—a 0.9 percent increase over 2017 compared to a typical increase of 1.5 percent. Production was driven by an additional 250 pounds per cow despite 49,000 fewer cows in the national herd.
Slower growth rates in milk production translate to less excess milk being dried into powder. Cheese inventories are about 5 percent higher compared to last year despite slowed production in December. Relatively low cheese and whey prices offset somewhat higher powder and stable butter prices, resulting in farm milk prices remaining in the current range.
Check out the full report, “Agriculture Still Waiting for Relief,” at cobank.com.