Agriculture’s Financial Outlook Still Uneven

In terms of difficulty, 2019 would rank near a 10 – and unlike in gymnastics, that’s not necessarily a good thing! Although growers and ag retailers have gotten used to lower-than-expected commodity prices, this year piled on the negative news with uneven weather events around the globe and a protracted trade war between many of the world’s major agricultural export partners (including the U.S. and China).

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Agriculture’s Financial Outlook Still Uneven

William Tierney, Jr., AgResource Co.

At this year’s annual Mid America CropLife Association meeting in early September, Dr. William Tierney, Jr., Chief Economist for AgResource Co., reviewed the myriad variables affecting agriculture in 2019. He also gave attendees a brief look ahead to 2020, offering a sobering outlook for the marketplace.

First off, Tierney acknowledged just how difficult it was for many of the nation’s growers to simply get seed into the ground this past spring. Record and consistent rainfall throughout much of Midwest, Mid-South, and Eastern U.S., followed by unusually cool temperatures, kept many growers from getting into their fields well into June. Even worse, many acres never got planted at all.

“According to the Farm Bureau’s August 2019 estimates, there was a total of 19 million prevent plant acres across the country this year,” said Tierney. “Six states – Arkansas, Minnesota, Missouri, Ohio, Illinois, and South Dakota – accounted for almost 57% of this total. South Dakota had the nation’s highest number of prevent plant acres at 3.9 million acres.”

Given these non-existent or late planting dates, many analysts are forecasting that crop yields will be down significantly for the year. For example, the U.S. corn yield estimate could be 165 bushels per acre, down 12 bushels per acre from the 40-year trend line.

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“The average Illinois corn crop won’t be at black layer until November,” warned Tierney.

And as for soybeans, they might be in even worse shape based upon the available data. “Once a soybean plant begins the podding process, it requires some 53 to 56 days to reach full maturity,” said Tierney. “There were 16 million acres of soybeans starting the podding process in late August, they will require nearly eight weeks to reach maturity. First frost/freeze dates will have to hold off until October 19-30, two to three weeks later than normal across the Northern Plains and one to two weeks later than normal across the northern one-third of the Midwest.”

Of course, U.S. soybeans might have a larger issue to tackle, namely China. “Chinese imports of American soybeans have all but dried up over the past year,” said Tierney. Part of the reason for this, besides the ongoing trade dispute with the U.S., ties back to the steep decline in China’s hog herd, which typically consume U.S. soybeans as feed. Because of an outbreak of African swine flu, Tierney estimated that the country has seen its hog production drop by 29% in 2019. And this number is expected to fall another 15% to 26% for 2020.

“Pork production in China may take more than five years to recover,” he said. “In fact, Reuters reported as many as half of China’s breeding pigs have either died or been slaughtered.”

Put all these factors together, said Tierney, and the outlook for the next few years for the nation’s growers doesn’t appear very bright. “The prospects are that crop prices will continue to be low over the next several years, leading to a period of lower farm incomes,” he said. “Even given those prospects, prices could go even lower, causing more financial stress to develop. Right now, I wouldn’t be surprised to see corn prices below $3 per bushel in 2020 and soybeans as low as $7 per bushel.”

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