The Future of Ag: Why Increased Certainty Should Breed Optimism
Association of Equipment Manufacturers (AEM) is regularly asked to comment on the state of the agriculture industry. As an equipment manufacturing industry representative, I often find myself responding to questions from our members, reporters, or industry stakeholders related to current market conditions. Reporting on the health of the agriculture equipment industry is easy because AEM’s Tractor and Combine reports provide an objective measurement of sales.
But as we all know, that is only part of the story. Telling the story behind the numbers is proving increasingly difficult.
2018 In Review
Looking back at 2018, the ag market can be summed up in one word – uncertainty. This time last year, the ag market – specifically the ag equipment market – looked very promising. Our industry was celebrating tax reform, decreased regulations, and a commodity market starting to show some signs of recovery.
That positive momentum didn’t last long, as we began to hear rumblings about changes in the Renewable Fuels Standard that could dramatically reduce corn demand. This was quickly followed by the announcement of steel and aluminum tariffs that would not only increase the price of our raw materials, but would also lead to retaliatory tariffs on U.S. ag exports in one of our most important markets for soybeans and other major commodities. Adding to this uncertainty drama was a looming expiration of the 2018 Farm Bill with its important safety net for those who purchase the products we manufacture. In short – a year full of uncertainty.
Farming is a long-term, capital-intensive business. A farmer must feel optimistic about the future in order to make capital investments in new equipment. Farmers are naturally optimistic – they have to be to plant a crop and have faith that it will produce their income. But, over time, uncertainty erodes this built-in farmer optimism.
Looking into 2019 and beyond, it is pretty easy to once again be optimistic. This uncertainty in the ag market is showing signs of resolution. As I write this column, farmers are awaiting implementation of the new farm bill, looking forward to the year-round selling of E15 fuel, and hopeful of renewed soybean trade relations with China.
Let’s start with the 2018 Farm Bill. A pleasant surprise after the mid-term elections was the push to get a farm bill passed before the end of the year. Even better, this new farm bill included both a renewed commitment to a farm safety net and a new provision to address rural broadband for benefit of precision farming. These two AEM supported efforts along with many other updated provisions are good for agriculture and for AEM members.
The recent government shutdown and changes in party control of the House Ag Committee may alter the implementation, but the foundational principals are set for the next few years. Overall, the passage of the farm bill should go a long way towards clearing up some of that uncertainty facing farmers as they consider investing in farm equipment.
Regarding the Renewable Fuels Standard, most current indications are positive news for ethanol and modern agriculture. AEM has been an active proponent of renewable energy as a way to drive additional demand for corn and soybeans. In December, several AEM representatives had a sit-down meeting with EPA Administrator Andrew Wheeler specifically to discuss year-round sales of E15. The outcome of the meeting lines up with statements made by the administration and USDA that this is to be approved prior sometime in early 2019. This development, once solidified should provide some much-needed certainty for corn demand.
That leaves trade negotiations, specifically with China, as additional area of uncertainty. At this time, there is no real progress on removal of the steel and aluminum tariffs. Although there are indications that China is again planning to purchase U.S.-produced soybeans, it still remains a bit uncertain. AEM has been an outspoken critic of the steel and aluminum tariffs while specifically pointing out the concern with retaliatory tariffs on U.S. agriculture.
This is a complicated issue with no real easy solution. Most farmers are still convinced that there will continue to be a demand for U.S. soy and crops around the world, but some are concerned with possible long-term changes in trade patterns that would change the demand landscape of the food our customers produce. The next few months should provide some additional certainty to this critical issue.
So, are we seeing more certainty in these times of uncertainty? There are definitely indications that the rest of 2019 will provide more certainty for the U.S. Ag economy. This should be good news for our industry and equipment manufacturing. I, like most farmers, remain optimistic.