Green corn field in the sunset. vencavolrab/ThinkstockPhotos-

CoBank report expects limited farm price improvements

Trade war with China is the leading risk for U.S. agriculture, study finds.

The latest Quarterly Rural Economic Review from CoBank’s Knowledge Exchange Division indicates any significant farm price improvements over last year’s prices will be limited, particularly with record U.S. yields for many of the major crop commodities adding to available supply levels. Meanwhile, the animal protein and dairy sectors continue to benefit from strong domestic demand and the promise of better access to Mexico and Canada, but will need more export market growth to absorb their current pace of output and expansion. 

“Agricultural markets are being squeezed as prices remain weak,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange Division. “While recently negotiated trade deals show some upside for agriculture, global demand for output from the U.S. agriculture sector is being outpaced by current U.S. production.”  

Key Factors and Findings

The CoBank report reveals the escalating trade war with China is the leading risk for U.S. agriculture and that retaliatory actions taken by China and other trading partners have raised concerns of long lasting effects on agricultural supply chains. However, USDA assistance to farmers and ranchers suffering hardship may have a modest impact on farm financial conditions. 

Other key findings include:

  • Sustained growth in emerging markets will support increasing demand for higher value products such as animal protein, dairy and specialty crops.
  • With the trade environment in flux, the U.S. economy remains on strong footing with tax reform and increased government spending providing significant fiscal stimulus.
  • In specific commodities, 2019 could see record yields for U.S. corn, soybeans and cotton, which is boosting supplies and limiting price improvement. For wheat, concerns about production shortfalls in the EU and FSU regions have pushed prices higher.
  • The animal protein sector has benefited from low commodity prices and excess supply, but trade concerns continue to weigh on beef, poultry and pork markets. However, domestic consumer demand remains stout for animal protein, although pork is experiencing the biggest jolt caused by trade disputes and oversupply.
  • Although the dairy markets have been weak, they continue to show modest signs of improvement through the third quarter of 2018, though producer distress remains, forcing some to exit the business.

The full quarterly U.S. rural economic review, “Rising Output Compressing Agricultural Margins,” is available at cobank.com.

Source: CoBank

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