U.S. agriculture is poised for serious challenges for the remainder of 2019.
The U.S. economy is still performing well by most key measures. However, consumers, investors, companies and other market participants have become more wary about the near-term future with seemingly good reason.
Agriculture and its farmer cooperatives will face a challenging environment in 2019. Commodity markets have steadied, but resolution of ongoing trade disputes and completion of recently concluded trade negotiations will be critical to restoring optimism for the year ahead.
Part of the rural labor shortage story is best told through statistics and trends. But to gain a more full picture of how labor challenges are affecting businesses, it is best to hear directly from those meeting the challenges head on.
The risk of an escalating trade war is the greatest threat to the U.S. and agricultural economies in the near term. Nearly 70 percent of U.S. agricultural exports are sold to destinations that are under active negotiations or embroiled in trade disputes.
An impending trade war, continued large global supplies, and negotiations over a new farm bill and tax extenders continue to present challenges for U.S. agriculture and farmer cooperatives. Reduced harvests in Argentina and potential droughts in some parts of the U.S. have steadied grain and oilseed market prices but there remains a potential for significant volatility.
U.S. egg production, pricing and producer profitability have been highly volatile over the last two years. The Highly Pathogenic Avian Influenza (HPAI) outbreak in 2015 caused egg prices to surge, incentivizing egg producers to ramp up production and quickly replace the laying hens lost to HPAI. Coincidentally, during the second half of 2015 and into 2016, major food companies pledged to transition to higher cost cage-free production by the year 2025 just as egg prices went into freefall. The result has been an increasing supply of cage-free production amidst a surplus of less expensive, conventionally produced eggs.
Recent studies show that 68 percent of Americans have recently bought organic food items and 44 percent have recently bought non-GMO labeled food. So what impact are these trends in food consumption having on U.S. production agriculture?
California’s 2015/16 rainy season just ended and delivered nearly normal rainfall and snowpack, unlike the four previous years. Yet the state’s parched conditions persist, with substantial portions of Central and Southern California still blanketed by severe to exceptional drought.
U.S. grain and oilseed prices have been hovering at multi-year lows for months. The result has been tight or negative farm margins and the entire supply chain under economic pressure. This is not the first down cycle experienced by U.S. corn, soybean, and wheat producers, and it certainly won’t be the last. But this time is indeed different.
China’s economy is slowing. That much is understood, and it has become one of the biggest stories of the past year. Investors, central bankers, and business leaders alike have grown concerned about the fallout from China’s deceleration, and how it could derail several industries globally.
Following 18 months of record earnings, the U.S. ethanol industry has rebalanced in 2015. As energy prices collapsed in late 2014, so did ethanol prices and plant margins. However, ethanol’s supply/demand has been well balanced in 2015, and producers have maintained positive earnings.
California is now heading into its fourth year of severe drought. All Californians face significant water restrictions during 2015. For urbanites, the restrictions will represent an inconvenience, including brown lawns and empty swimming pools. For growers, ranchers, and agribusinesses, the restrictions pose a threat to their livelihoods.
Commodities are currently viewed as a victim of adverse macroeconomic conditions. The value of the U.S. dollar, China’s economic slowdown, and depressed crude oil prices are all being credited with sending the broader commodity markets into a down phase of the commodity super cycle.
The efficiencies associated with shipping grain by shuttle train have revolutionized grain transport over the past two decades. Nearly 7 out of every 10 rail cars that are loaded with grain now originate from a shuttle loading facility.
Up until the late 1990s, China was a net exporter of soybeans, and an important supplier of the oilseed to other Asian countries. Since then, however, China has outgrown its ability to produce enough soybeans for its own use, let alone be a supplier to greater Asia.
Following months of anticipation and conjecture among ethanol stakeholders, the EPA recently released its proposal for 2014 biofuel blending obligations. The agency’s proposal reflects the most significant shift in biofuel policy since the Renewable Fuels Standard (RFS) was revised in 2007.
Producers and processors in the grains, oilseed, and ethanol sectors will be confronting a transitioning marketplace in 2014-16 with production volatility subsiding as crop inventories are rebuilt.
Soybean prices for the 2013/14 season have been rising against corn at a staggering pace since early summer. The late developing crop and intensifying dryness in key growing areas have triggered a multi-month rally in soybean markets while corn has remained somewhat of a laggard.
Fueled by a year of drought and dwindling stocks, expectations loom large for record South American soybean crop in 2013. Current estimates project that South American soybean output will exceed the previous record by 9 percent.
Since the early-2000s, elevated grain prices and improved seed traits have spurred a gradual but steady shift in acreage away from the Delta’s traditional crops of rice and cotton to make room for more profitable corn and soybeans.
Record grain production in recent years has necessitated massive investments in new storage bins across the heartland. And while the building craze began several years ago, it is likely to be years before new construction subsides.
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.