Ukraine

Ag Economists Turn More Positive Longer-Term On the Farm Economy

Thu, 20 Jul 2023 20:01:20 GMT

The July Ag Economists’ Monthly Monitor shows weather extremes and wild swings in the commodity markets are the two biggest factors impacting short-term outlooks, but the economists surveyed expressed a more favorable view longer-term. The latest survey also shows the biggest wildcard for agriculture over the next year could be geopolitical risks tied to China and the war in Ukraine.

This is the second survey of the Ag Economists’ Monthly Monitor , a joint effort between the University of Missouri and Farm Journal. The first-of-its-kind survey collects insights from ag economists across the U.S. Nearly 60 economists are asked each month to provide their forecasts and views. They represent a wide geography with expertise in grains, livestock and policy.

This month’s survey showed several key changes from June. Economists say they believe USDA’s current corn and soybean yield projections are still too high, and they anticipate a drop in forecasted corn and soybean prices. The economists in the July survey also predict cattle and hog prices could continue to climb higher this year.

“To me, the biggest thing that sticks out in the July survey is the more positive view 12 months into the future relative to where we were in June,” says Scott Brown, University of Missouri agricultural economist who helps author the survey each month. “In the very short run, the economists are a little less positive than where they were in June. I think that has a lot to do with the weather and general market moves we’ve seen over the last few weeks.”

(Farm Journal)

The longer-term optimism revealed in the survey is despite economists’ expectations for two consecutive years of declining net farm income, falling short of the record set in 2022. The July Monthly Monitor forecasts net farm income to fall to $132.8 billion in 2023, which is below the $134.7 billion in the June survey and USDA’s current net farm income estimate of $136.9 billion. That’s still a big drop from 2022, when USDA says net farm income reached $162.7 billion.

This month’s survey also tried to peel back the layers of what commodities might be aiding the more positive long-term outlook versus weighing on the overall health of the ag economy in the short-term.

“On the crop side, it’s positive to very positive,” Brown says. “There are a few in the negative category, but a majority of economists responded the crops side of the equation looks positive. Whereas, on the livestock side, we have more negatives than we have positives.”

Economists say there are several positive developments that could shape U.S. agriculture, such as continued productivity and efficiency gains; a healthy farm economy and balance sheets; projected shifts in interest rates; new and expanded opportunities for renewable fuels; and the strength of the U.S. cattle market and meat exports as a whole. Geopolitical issues could also impact global crop production and, in turn, bring some demand back to the U.S.

Cuts to Projected U.S. Crop Yields

The survey was sent to ag economists the day after USDA released its most recent yield forecast in the July WASDE report. In what was called a rare move early in the growing season, USDA cut its corn yield forecast by 2.2% to 177.5 bu. per acre, down from 181.5 bu. per acre in the June report. The July Ag Economists’ Monthly Monitor is nearly 3 bu. per acre lower than USDA, with the group of ag economists projecting a yield of 174.9 bu. per acre.

“For me, the interesting piece of this story is there’s a lot of variability in the responses from those being surveyed, which highlights how varied the weather has been as you move around the country,” Brown says. “We had yield estimates slightly below 170 bu. per acre on the low end and some above 180 bu. per acre on the high end.”

(Farm Journal)

Brown says the soybean estimate also came in lower than both USDA’s July WASDE report and the June Ag Economists’ Monthly Monitor survey. USDA estimates soybean yield at 52 bu. per acre, and the average ag economists’ estimate is 50.6 bu. per acre, a 0.5 bu. cut from the June survey.

“There was a little less variability from top to bottom on those yields, but when you look at prices, even with what was a lower corn yield, their estimate of 2023/2024 corn prices went from $4.99 in June to $4.80 in the July survey,” Brown says.

(Farm Journal)

What Economists are Watching the Next Six Months for Crop Prices

When asked what factors will impact crop prices in the next six months, economists said:

Final yields
Export demand and competition
Weather domestically and abroad
Geopolitical risk in the Black Sea and China, including developments that impact ag exports in Ukraine/Russia

“I think a couple of things stick out beyond the weather discussion, and one is export demand as well as global competition, such as what’s going to happen with South America in terms of competing with U.S. corn and soybean markets.

“The economists certainly continue to talk about the geopolitical risk in the Black Sea and China, in particular, and what that means for our ability to export corn and soybeans as we look ahead,” Brown says. “Those are really the two big ones that came out of this survey.”

What Livestock Economists Are Watching the Next 6 Months for Livestock

Ag economists think the following factors will impact prices the next six months:

Changes in feed costs and impact of corn prices
Rising milk prices
Consumer meat demand and influences from macroeconomic factors, both domestically and abroad
Placements of cattle on feed

Brown says while the majority of economists are concerned about feed costs and the impact on livestock producers, the second-biggest concern revealed in the survey is demand. Economists pointed to both domestic and international demand as possible problem areas.

“2021 and 2022 were extremely positive from a demand standpoint, and we seem to be backing up a little bit in 2023,” Brown says.

Economists More Bullish on Cattle and Hogs

The July Ag Economists’ Monthly Monitor shows economists are more positive when asked about cattle and hog prices, but they have a more negative view on dairy, which they consider the biggest weight in the livestock sector.

“When you look at where pork prices have gone over the last month, it’s gotten more positive. Now, I don’t want to suggest we’re back in black ink, but we have seen recovery in things like the pork cutout value,” Brown says. “The economists continue to worry about how the general economy will affect livestock going forward, but overall, it seems we’re seeing a more positive view from the livestock perspective in this month’s survey.”

(Farm Journal)

Based on the July monitor, economists expect average milk prices to fall back to 2021 levels, but production costs will continue to be higher in 2023 versus 2021.

“No. 1, the economists continue to worry about feed costs,” Brown says. “We continue to see fairly high feed costs affecting profitability. So even in the case of beef cattle, where we’re talking record cattle prices, we’re not talking record profitability because of the feed cost side.”

(Farm Journal)

Longer-Term Look at the Health of Agriculture

Over the next 12 months, there are several things that could shape the health of the ag economy, according to the July survey:

Crop prices and production costs, including inputs, rental rates, land values and supply chain disruptions
Subsequent impact on producer margins and the protein sector from rising interest rates and inflationary pressure
Weather considerations, including drought conditions in the short run and yield impacts in longer run
Geopolitical tensions and competitiveness of U.S. ag exports
Changes in consumer demand domestically and abroad, new markets for agricultural products, including biofuels

“One thing that came pretty strongly out of the survey is the continued increases in productivity in agriculture, which makes us more efficient,” Brown says. “The farm economy is generally healthy, and when you look at balance sheets, they are still really, really strong in many cases. That’s despite a lot of the issues we’ve talked about.”

In the July survey, economists voiced more concerns about interest rates and the impact on operating loans. One economist also mentioned the industry might be underestimating the negative impact Proposition 12 could have on the entire livestock industry.

The Turbulent Relationship Between the U.S. and China

While none of the ag economists surveyed think the U.S. will enter into a trade war with China in 2023, economists continue to remain cautious about China, which could have a direct impact on U.S. agriculture.

When asked to list the top factors shaping trade relations between the U.S. and China, economists said:

POTUS and political polarization in the U.S.
Non‐agricultural geopolitical tensions, including national security concerns, support of Taiwan and limits on technological production
Changes in China’s economic growth, including population and demographics
Russia’s invasion of Ukraine and Russia’s relationship with China
Quality, price and availability of U.S. products compared with global competitors

Potential Events/Factors Not Getting Enough Attention Today

The July survey also asked economists to outline any factors or events that currently aren’t receiving enough attention but could shape agriculture over the next 12 months. One economist brought up impacts of geopolitical risks and fallout from the war in Ukraine, but also a potential war between the U.S. and China.

Other potential events that could cause a major shakeup in agriculture include:

Weather events, domestically and abroad, warranting a broader conversation on climate
Potential for a significant recession in China
Focus on renewable diesel obscuring importance of RFS in overall biofuel use
Workforce concerns for producing, processing and transporting agricultural products domestically and abroad
Declining EU pork production and commerce implications of Proposition 12
Strikes at shipping ports in Vancouver and potential for upward pressure on potash prices with reduced production capacity at Nutrien mines in Saskatchewan

Previous Ag Economists’ Monthly Monitor Coverage

Most Ag Economists Think It’s Unlikely the 2023 Farm Bill Will Be Written in 2023

High Production Costs Could Weigh on the Ag Economy Through 2024, New Survey of Economists Finds

Diesel Prices Just Hit a New Record High, Here's Why a Diesel Shortage May Be Next

Tue, 10 May 2022 21:18:45 GMT

Farmers are already faced with a shortage of equipment parts, tires and some crop inputs. Now, due to increased demand and a drop in production, a diesel shortage may be next as the largest diesel distribution hub in the U.S. is sitting on supplies at a 30-year low.

Record gap between gasoline and diesel, but the gap will start to shrink very soon- not by leaps and bounds, but slowly. https://t.co/oFGj8piR3h
— Patrick De Haan ⛽️📊 (@GasBuddyGuy) May 9, 2022

Diesel prices hit a record again this week. The national average price of diesel is now $5.54 per gallon, which is an increase of 22 cents from last week, which was when the most recent record was set. Data shows there’s no state that’s currently seeing diesel prices below $5.12 per gallon.

So, what’s causing the historic run-up in prices?

It’s a combination of things, but Russia, supply chain trying to play catch-up and lower production along the East Coast are all adding to the dire supply situation.

“Diesel supply is short all over the world due to sanctions against Russian oil and much higher post-pandemic demand as supply restocking takes place,” says Peter Meyer with S&P Global Commodity Insights.

Meyer adds the “just in time” supply chain model only exacerbates the problem as the supply chain works through issues that date back to the Covid-19 pandemic.

Some farmers are now even reporting farm diesel prices are higher than on-road diesel, which is typically not the case.

Record prices are one thing, but getting your hands on enough diesel may be the next issue for farmers.

“Certain areas of the country have seen shortages already and we expect that to continue. Supplies at New York Harbor–a hub for diesel distribution–are at a 30-year low,” says Meyer. “As such, the East Coast of the U.S. has been hit especially hard, resulting in diesel prices above $6.00 per gallon in that area, well over the equivalent of $250 per barrel. Exports of U.S. gasoline, diesel, and jet fuel to Latin America is also very high, adding to the tightness.”

(Farm Journal)

The bottlenecks in the diesel supplies are not a shortage of oil that the U.S. is dealing with, even with the sanctions against Russia. Instead, Meyer says it’s a shortage of refining capacity on the East Coast.

The problem on the East Coast is refining capacity, not so much the supply of oil,” he says. “East Coast capacity has been cut in half from 1.6 million barrels per day to 800,000 barrels per day over the past 10 years as half of the refineries in the east have shuttered. Lower production capacities and higher post pandemic demand has caused this squeeze in the eastern U.S.”

Meyer says making price forecasts is proving to be extremely difficult considering, but margins are enticing refiners to produce as much diesel as possible.

“When the profit margin on producing diesel is over $70 per barrel, every refining company in the US will be doing all they can to produce as much as they can,” says Meyer. One bright spot may be that after a cold spring, heating oil demand will obviously diminish quickly in the summer months.”

Meyer also says renewable diesel production may actually benefit from the historic spike in diesel prices, but he points out soy oil, which is still the predominate feedstock, continues to take its lead from the oil product markets and is overpriced for many.

Diesel Export Ban Looming?

There’s a higher demand around the globe for products like diesel, heating oil and jet fuel, which are known as “middle distillates” since they are made from the middle of the boiling range when oil is turned into products. The U.S. currently exports more than 1-million barrels of distillates every day to countries such as Mexico, Brazil and Chile.

So could an export ban be coming for diesel fuel?

AgriTalk host Chip Flory put that question to Farm Journal Washington analyst Jim Wiesemeyer during this week’s “Signal to Noise.” Wiesemeyer says while it’s not known to be on the table at this point, anything his possible. You can listen to that discussion here.

BREAKING: U.S. To Ban Russian Oil Imports

Tue, 08 Mar 2022 21:47:15 GMT

UPDATE: WASHINGTON (AP) - Biden: US ban on Russian oil a ‘powerful blow’ to ‘Putin’s war,’ warns Americans ‘defending freedom is going to cost.’

UPDATE: NEW YORK (AP) - Average price for a gallon of gasoline in the US hits a record $4.17 as the country prepares to ban Russian oil imports.

UPDATE: President Bident to speak at 10:30am EST approx. The White House says he will “announce actions to continue to hold Russia accountable”. You can watch it here .

WASHINGTON (AP) - President Joe Biden has decided to ban Russian oil imports, toughening the toll on Russia’s economy in retaliation for its invasion of Ukraine, according to a person familiar with the matter. The move follows pleas by Ukrainian President Volodmyr Zelenskyy to U.S. and Western officials to cut off the imports. Energy exports have kept a steady influx of cash flowing to Russia despite otherwise severe restrictions on its financial sector. Biden was set to announce the move as soon as Tuesday, the person said, speaking on the condition of anonymity to discuss the matter before an announcement.

NBC News reports the ban could happen as soon as Tuesday. It’s believed the move will push energy prices even higher. The President is scheduled to deliver remarks this morning from the White House about the situation involving Russia. Oil was already starting the day up over $125 a barrel on Tuesday. Follow the markets here .

(Farm Journal)

This is a developing story. Stay with us for updates.

Russian Invasion is Bad News for U.S. Meat Consumers, Steiner Says

Fri, 25 Feb 2022 14:53:42 GMT

Will the expected sanctions on Russia impact global meat trade and demand? Steiner Consulting Group posed this question in the Feb. 24 Daily Livestock Report .

“A while back, Russia was a major buyer of proteins in the world market. We still remember when prices for chicken leg quarters in the U.S., or the price of beef in Brazil, would be greatly affected by events in Russia. That is no longer the case,” Steiner Consulting Group wrote.

In the last decade, Russia has become self-sufficient in providing its own meat protein. According to USDA’s Foreign Agricultural Service data, as recently as 2010, Russia relied on pork imports for about a third of its pork consumption. However, in 2021, USDA points out that Russian domestic pork consumption was 26% higher than in 2010 and the country is now a net exporter of pork.

Despite African swine fever (ASF) outbreaks during this time period, Russia increased its domestic pork output by 86% and completely eliminated its dependence on imports, Steiner Consulting Group said.

In the early 2000s, more than half of the chicken that Russian citizens consumed came from imports. By 2010, Russia’s imported share had dropped to 27% and last year imports accounted for just 5% of consumption. Meanwhile, Russia exported almost as much chicken as it imported. Since 2010, Russian domestic chicken consumption has increased 36% while domestic chicken production increased 67%.

Meanwhile, beef has been a more difficult protein to secure within Russia considering land limitations and domestic preferences. Russian beef consumption has declined 32% since 2010 and domestic production is 5% lower than it was 11 years ago.

“Russia still buys beef in the world market, but that volume is down 67% from where it was in 2010 and even smaller than it was in 2006 or 2007 (before the financial crisis). Most of the beef that Russia bought in 2021 came from two sources: Paraguay and Belarus,” Steiner Consulting Group wrote.

Russian imports from Belarus are unlikely to be affected by Russia’s invasion of Ukraine. Steiner Consulting Group believes the impact from a reduction in South American imports is likely to be minimal on global trade.

“Bottom line: Impact from restrictions on Russian protein purchases in the world market are likely to have no impact on global trade,” Steiner Consulting Group said. “However, Russia and Ukraine are major contributors to global grain and oil trade, and they are also major suppliers of fertilizers. High feed and energy costs are negative for U.S. livestock producers, and they will negatively impact their ability to bring more product to market. Ultimately this is bad news for U.S. meat protein consumers.”

Steiner Consulting Group said what’s even more uncertain is how a further spike in inflation could impact domestic and export demand.

“In this context, high-priced proteins, like beef, face more downside risk than pork or chicken,” Steiner Consulting Group wrote.

Read More:

Fake Meat Is Bleeding Money

Why We Need a New Partnership Between Swine Farms and Packing Plants

Putin Just Cost You $35 Per Head

Thu, 24 Feb 2022 23:05:33 GMT

Markets don’t like uncertainty and Vladimir Putin just gave to world’s markets a heavy dose of uncertainty.

Russian stocks crashed by as much as 45% and the ruble hit a record low against the dollar on Thursday, all of which was triggered by Russia’s invasion of Ukraine.

In the U.S., the Dow Jones Industrial Average opened down 800 points, but had regained some of that loss by mid-day. Blue-chip stocks are now down 11% from the record of 36,799 set on Jan. 4, 2022.

Cattle? The geo-political events couldn’t have come at a worse time. Cattle prices had finally turned higher in 2022 after three years of struggling against unforeseen events – packing plant fire, pandemic, cyber-attack.

Feeder cattle futures suffered the most from the Ukraine invasion. The nearby contracts were down $4.50 to as much as $5.00 by midday. At the close April feeder cattle fell $4.475 at $163.80, a two-month low. For a 775-pound feeder steer that’s a loss of about $35.

Live cattle futures also pushed lower. April live cattle fell $2.45 to $142.30, the lowest closing price since Jan. 27. That’s also about a $35 per head loss.

Cash cattle traded at $142 - $143 last week, the highest price since August of 2015. This week has already seen prices $1 to $2 higher in trades prior to the Ukraine invasion. Choice boxed beef prices fell just 12 cents on Thursday morning to $260.76 per cwt. Select boxed beef, however, fell $3.48 to $255.48 per cwt.

April live hogs were down $1.50 per cwt. to $106.47 at midday.