Quarterly U.S. Rural Economic Review

Uncertainties over U.S. trade policies have made some foreign buyers reexamine their supply chain dependency on U.S. products and provided an opportunity for U.S. competitors to aggressively pursue bilateral trade agreements.

Unrelenting Abundance

October 2017
The U.S. dollar has weakened roughly 10 percent from its recent high, benefiting U.S. exporters. But U.S. economic growth will be difficult to sustain beyond 2.5 percent.U.S. combined corn, wheat and soybean stocks are now the largest since 1988. Such large domestic supplies and aggressive foreign expansion will make substantive price recovery difficult.
Market focus is shifting from the large supplies left from 2016/17 to new global crop potential, coming production adjustments in the world’s livestock and dairy markets and the uncertainties in trade policy.
The U.S. is now the epicenter of global uncertainty, amidst questions and concerns about the direction of its economic, trade, and foreign policies. U.S. agricultural markets remain under stress. Abundant supplies of crops, dairy products, and proteins continue to weigh on prices and producer margins. Growing ag exports have served as a safety valve, but the strong U.S. dollar continues to undercut the competitiveness of those exports.
Agricultural producers across the U.S. all face a common challenge consisting of a widening imbalance between demand and supply, growing dependence on exports, and the attendant downward price pressures.
Growers and grain handlers in the U.S. are bracing for record corn and soybean harvests this fall following a healthy wheat harvest that now occupies a substantial amount of grain storage space. U.S. agriculture will likely test the effectiveness of the safety net provided by the 2014 Farm Bill, and U.S. growers will find the next year or two to be even more challenging than the previous two years.
Despite ample grain and oilseed inventories in the U.S. and throughout the world, fears of hot and dry growing conditions associated with La Niña at least temporarily reversed months of continual downward market pressure, and priced in a risk premium.
The torrent of bearish news continues for U.S. agricultural producers. The U.S. dollar remains elevated relative to world currencies, severely hampering U.S. commodity exports which are now widely seen as much lower than the USDA’s latest projections.
Cash prices remain stubbornly below breakeven across the commodity spectrum for the majority of farmers. Strong domestic demand, meanwhile, has helped drive local basis in the U.S. to historically strong levels amidst the lethargic pace of farmer selling.
After two years of sharply falling income, U.S. agriculture confronts a much different global marketplace today than it did in 2010-14. The economic slowdown in China is rippling through other emerging economies with significant linkages to China’s economy, particularly in terms of raw materials and commodities. Global demand for agricultural products will continue to grow but at a subdued pace.
Agricultural supplies are on the increase. From field crops to dairy and animal protein, supplies of agricultural goods are building and prices are suffering.
U.S. agricultural sectors – ranging from crops to animal protein to dairy – have been adjusting to lower price environments amidst mounting inventories.
The collapse in oil prices and ongoing volatility in foreign exchange markets have sent the world economy and commodity markets into uncharted waters. The U.S. and United Kingdom are on sustained albeit subdued growth trajectories.
With normal global harvests and grain demand growth returning to trend patterns, commodity prices will stabilize far below recent cyclical highs over the next year, but net farm income will continue to fall.

Transitions Ahead

July 2014
Wide-ranging uncertainties continue to cloud the horizon, but market sentiment remains cautiously optimistic about the global economy’s growth prospects for 2014-15. The advanced economies are expected to carry the growth momentum in the near-term.
Despite emerging economic weakness in China, turmoil in Ukraine, and severe winter weather in the U.S., the global economy appears to be gaining momentum. The prolonged recession has ended finally in Europe, and the impetus for global growth has shifted from China and the emerging markets to the developed economies.
A bi-partisan budget agreement in the U.S., the formation of a coalition government in Germany, breakthroughs in Iran, and Japan’s commitment to address structural reforms have moved the global economy out of a crisis mode to one of guarded optimism.
Downside risks continue to plague the global economy. Sovereign debt and fiscal issues are constraining the advanced economies, emerging markets have been limited by the weakness in exports to the advanced economies, and central banks have been backed into a corner and left “pushing on a string.”
As the year progresses, global economic growth appears to be winding down. The euro region remains enmeshed in a prolonged recession while the U.S. economy appears to be slowing as fiscal drag from increased taxes and reduced spending offset strength in the housing and auto sectors.
The world economy continues to rely on China and the emerging markets as the main engines of growth. China’s new leadership will be setting new directions in economic policy, and the world waits to see whether there will be dramatic departures from the status quo.
The U.S. and European economies continue to struggle with fiscal deficits and mounting debt, and face an extended period of fiscal drag and policy uncertainty. China and other emerging markets have become the primary growth engine for the global economy, but they must find ways to stimulate internal consumption to offset the weakness in their exports to the advanced economies.
Global economic growth will remain subdued during the next year as the advanced economies struggle with sovereign debt and growth issues while China and other emerging markets attempt to spur internal growth to compensate for reduced export flows.
The two-speed global economy, driven by emerging market growth, may be faltering. Both European and U.S. economic prospects are becoming increasingly influenced by the failure to implement effective fiscal policy actions to address their sovereign debt issues. At the same time, China has initiated various internal economic stimuli to recover some of its lost growth momentum.
Global and U.S. economic prospects appear to have taken a turn for the better during Q1-2012, reflecting renewed optimism as well as an easing in the contagion risks that have dominated earlier economic assessments. The European and U.S. economies seem to be on steadier footings, although they each still face ongoing risks and challenges. Meanwhile, China and other emerging economies are attempting to transition from weaker export growth to stronger internal demand.
Analysts are becoming increasingly concerned about the medium-term global economic outlook. Annual global economic growth is now projected to slow to less than 4 percent in the next 12-18 months. Much of Europe is enmeshed in a recession, and the European banking system is less and less willing and able to extend credit. The U.S. is wrestling with its own debt problems.