Tag: Farm Economics

No other way to say it; farmers are frustrated.

May’s Ag Economy Barometer plummeted 20 points as pessimistic producers weighed current and future farm economic conditions. Just 27% of surveyed growers expect ‘good times’ for U.S. ag in the next five years – the lowest in survey history.

What’s to blame: Producers expressed concern over tax uncertainties and rising input costs. Of producers surveyed:

• 83% expect capital gains tax rates to rise over the next 5 years
• 78% think proposed policies will make it harder to pass on the farm to the next generation
• 43% predict 2022 cash rental rates will jump by 10%+

Crop input prices are also likely to remain high as supply chain concerns plague everything from crop protection ingredients to the cardboard and plastic they’re stored in.

But it’s not all bad. While producer sentiment isn’t high across the board, 54% of respondents expect the crop sector to yield good results in the next five years. Crop producers also remain bullish on farmland values.

Any positive vibes row crop producers may be feeling are not necessarily shared with their dairy and livestock counterparts. Only 26% of those surveyed expect to see ‘good times’ in the animal production space in the next five years.

Where this goes: The short-term impact could be seen in machinery purchases and construction plans. While farm equipment sales are having a heyday now, producers noted less purchase intent in the coming year. And 59% of those surveyed reported lower year-over-year construction plans, including new buildings and grain bins.

Talk to just about anyone connected to the ag industry today and you will see their face light up when the conversation inevitably turns to commodity prices. After all, higher commodity prices are good for everyone…

Minus one audience: bankers.

Farm lending has been on the slow track for a while now, and that train kept rolling into the first quarter of 2021.

Not exactly welcome news if you’re the one with money to lend.

The Kansas City Federal Reserve Bank found that overall non-real estate farm lending in the first quarter dropped about 10% compared to last year. Within that group, loans to cover operating expenses are down almost 20% year over year, to a level not seen since 2012.

Worth noting: Hefty government aid via pandemic relief likely also contributed to the decrease in lending activity.

The outlook: Most economists seem to agree that commodity prices will remain strong through 2021, but higher input costs could curb overall profits on the farm. And you can bet ag lenders will be watching those income statements closely to see if loan applications will be headed their way anytime soon.

Honey, I shrunk the…corn pile.

Last Friday’s WASDE report for the month of April projected U.S. corn supplies or carryover to be lower than expected, which drove futures for the grain to prices not seen in eight years.

So are they hiding it under a bushel basket or what? Not quite. Instead, the tighter supply stems from stronger demand, both domestic and foreign.

The corn demand shifted across the following categories:

• Feed use: +50 million bushels
• Ethanol Usage: +25 million bushels
• Exports: +75 million bushels

The shrink ray missed the soybean pile, though, as there were some tweaks but no major updates. The USDA is predicting slightly lower crush, seed, and residual use but anticipates slightly higher exports. Soybean ending stocks remained unchanged from March at 120 million bushels.

Bottom line: While the data didn’t cause fireworks quite like the previous week’s Prospective Planting report, many will be eyeing 2021 data closely to gauge where the country’s commodities are headed in the fall.

Wednesday’s release of the USDA’s Prospective Plantings report left many in the ag industry with a furrowed brow.

Backstory

Each March, the USDA sends out surveys to 80,000 farmers with the hope to better understand their planting intentions for the upcoming growing season. And most years, the big reveal is preceded by lots of hype, speculation, and uncertainty.

And farm economists have historical trust issues with the USDA’s data.

Lagging data often leads to revised reports months down the road. Last year even saw the final corn acreage tally 6.2 million acres below the March estimate. Woof.

But analysts still placed their bets. Between high grain prices, amped-up Chinese demand, and a slow South American growing season, most industry experts pegged farmers to be seeding corn and soybeans ‘fencepost to fencepost.’

Nowstory

Let’s just say the markets were caught a little off guard…

The surveys showed:

• Corn acreage expectations at 91.1 million, when the trade was anticipating 93.1 million.
• Soybean planting prospects at 87.6 million acres, a far cry from the 90 million expected.

The aftermath: Corn and soy prices went bonkers, both reaching their upper limit in trading for the day.

So, what’s mysteriously missing? About 3 million acres, noted University of Missouri economist Ben Brown. With steady acreage expectations for cotton and wheat, he’s intrigued where that cropland has gone in the estimates.

Looking ahead: Warm temperatures could make for a favorable and fast kickoff to corn planting. Add in the bookoo bucks on the table with current grain price levels, and growers might take the bait, adding in more acres to cash in.

Oh, snap. With planting season just around the corner, farmers might be experiencing a bit of “sticker shock” when making their crop insurance decisions this month.

Up, up, and away: According to ag economists, crop insurance prices have experienced the largest increase in more than a decade.

Here’s a breakdown of the USDA-set limits serving as “floor prices”:

• Corn: Up 18%, at $4.58/bushel, the highest price since 2014.
• Soybeans: A 30% spike has prices at $11.87/bushel, not seen since 2013.
• Cotton: A 22% jump has prices set at $0.83/pound, a 22% jump.

And as Successful Farming noted, producers will be incentivized to take supreme advantage of prices and plant “fencepost to fencepost and ditch to ditch.”

Go big or go home: With more export demand [see: China] and less of a stash of crop inventories than originally anticipated, prices are expected to drive higher.

But with higher prices, come higher premiums, and producers have seen a surge in crop insurance quotes as a result.

+ While we’re here: The latest trillion-dollar COVID-19 aid package has the House and Senate at odds. Recent bill tweaks left out help for farmers who suffered crop losses from 2020’s Iowa derecho and California wildfires. The Senate is working to reinstate what was stripped, but Democrat and Republican fisticuffs are expected before a resolution is agreed upon.