Stats That Stack 2015

 
Stats That Stack 2015

Production, prices and export outlook to weave into marketing plans

In a packed hotel ballroom far from Midwest fields, USDA Acting Chief Economist Robert C. Johansson presented the factors that will affect U.S. agriculture in the year ahead.

“Overall, the forecast for the coming year is bright,” said Johansson, speaking at USDA’s Agricultural Outlook Forum in February. “Record production has meant stock levels are higher and prices are lower, but producers will benefit from record asset levels and from new farm programs intended to cushion declines in farm revenues.”

As you make marketing plans for 2015, you might want to consider these statistics, based on USDA’s forecast:

  • U.S. agricultural exports should remain strong in 2015, hitting the second-highest level ever at $141.5 billion. That’s lower than 2014, but only because commodity prices have fallen.
  • Back-to-back bumper crops will keep prices painfully low in 2015/16. USDA projects $3.50 for corn, $9 for soybeans and $5.10 for wheat.
  • Soybeans continue to be a crucial crop for U.S. farmers, who could export more than 48 million metric tons of soybeans in 2015. That would be a record if realized, Johansson said.
  • While the U.S. is expected to remain the largest corn exporter, that title is at risk for other crops. In soybeans, the U.S. will likely lose out to Brazil in 2016/17. In wheat, the European Union and Russia are nipping at the U.S.’s heels. 
  • USDA thinks farmers will plant fewer acres this year—corn at 89 million acres and soybeans at 83.5 million acres. The trade strongly disagrees. (See “Traders Question USDA’s Soybean Outlook” below.) 
  • With $2.7 trillion in farm equity, farmers should be financially stable enough to withstand the downturn in crop prices. “Farm equity is the highest it has been since we began collecting and reporting on profitability in 1960,” Johansson noted. 
  • The U.S. will produce a record 95 million pounds of meat this year, thanks to the pork and poultry industries. Milk production will also be historically high at 211.5 million pounds. While the margins for cattle will stay strong in 2015, prices for pork, poultry and dairy are likely to soften.

As farmers gear up for another growing season with lower commodity prices and farm program payments hanging over their heads, could they be too exposed to price risk? 

“Farm income has always been price-sensitive, but now farm programs are also price-sensitive and have payment limits,” said Gary Schnitkey, University of Illinois professor, at the USDA event. “We are exposing them to more downside risk.”

The new farm programs represent a significant shift for farmers, who can no longer rely on direct payments to cushion a bad year. Instead, they are opting for higher crop insurance levels and making an educated guess on whether Agriculture Risk Coverage (ARC) or Price Loss Coverage (PLC) will be the better financial choice for their operation for the next five years.

Reference prices aren’t necessarily generous. For PLC, corn prices will need to fall below $3.70, soybeans 
below $8.40 and wheat below $5.50 to trigger a payment. “We are now guaranteeing levels below the cost of production,” Schnitkey pointed out.

He suggested such equations could lead to tight times, particularly for farmers who rent land. Increasing costs of production doesn’t help either. Between 2006 and 2013, for example, the non-land costs for farmers in central Illinois nearly doubled, from $313 per acre to $615 per acre.

The biggest expenses? Fertilizer (up $82 to $193 per acre), seed (up $45 per acre to $114), machinery depreciation (up $20 to $63 per acre) and pesticides (up $40 to $66 per acre).

One way farmers are minding production costs is through precision technology. “In addition to bigger, faster, stronger … our producers have expectations about easier, smarter, more precise,” said Cory Reed, senior vice president with Deere & Co.

“Precision is being driven through the technologies available to move from [data] averages at the farm or field level to the square meter,” he said.

Precision is just one of the many possibilities of biotechnology and big data in agriculture, based on a roundtable discussion moderated by Secretary of Agriculture Tom Vilsack and featuring Reed; Mary Kay Thatcher, senior director for Congressional relations at the American Farm Bureau Federation; and Robert T. Fraley, chief technology officer at Monsanto Company.

To Fraley, the combination of big data and biotech offers tremendous potential for farmers to customize their operation for ideal performance. 

“One of the real opportunities as we think about the use of the new knowledge in soil and data science is how more precisely we can use nitrogen,” Fraley said. Think about “the ability to know exactly the nitrogen level in the field, to be able to track on a daily basis during the growth of the crop [and] to be able to make a rational and economic decision on [whether] any additional nitrogen is needed or not. There is going to be a real boom in using these data science tools to be better stewards and better economic managers.”

Thatcher agreed—to a point. As California implements its new groundwater regulations, she said, those farmers will need the power of big data to make sure they comply with the rules.

But she also noted the ongoing concerns about data ownership.

“Every company will tell a farmer, ‘the farmer owns the data,’ but the fact is, if I’m the landlord and Cory’s the tenant, who owns the data? If it’s a crop-share agreement, who owns the data?” Thatcher questioned. 

The growing volume and portability of digital data also raises privacy questions for farmers who prefer to maintain control of their information. 

“We do have companies where you send your data off and they write you a prescription [for planting and fertilizing],” Thatcher said. “But unfortunately, they don’t send that data back to me—they send it to my local seed dealer or my local equipment dealer, and if that guy happens to be competing against me for cash rent, then he’s got a lot more information than I want him to have. There’s a whole lot of issues like that which still haunt us.”


Traders Question USDA’s Soybean Outlook

USDA’s projection that farmers will plant fewer acres—and just 83.5 million acres of soybeans—in 2015/16 proved to be controversial in the trade. 

“The bean number was the shocker,” said Tommy Grisafi of Advance Trading on “U.S. Farm Report.” “You have to take these numbers with a grain of salt.”

Surplus grain and soy supplies continue to force down prices. “With lower returns, plantings of wheat, corn, soybeans and rice are all projected to decline. However, the reduction for soybeans is limited as producers look for lower cost cropping alternatives, particularly for cotton and corn,” according to USDA.

In their more detailed commodity outlooks, USDA economists highlighted what they think makes this spring different from 2014 for soybean producers. 

  • Bigger U.S. ending stocks: 385 million bushels (projected) versus 92 million bushels in 2014
  • Larger Brazilian Oct. 1 stocks: 24.8 million metric tons versus 16.5 million metric tons in 2014
  • Lower average price: $9.93 versus $14.65 in 2014
  • Flat soybean/corn price ratio: 2.5 versus a rising 3.1 in 2014
  • Brazilian currency values: a weakening real in 2015 versus a strengthening real in 2014.

Traders are skeptical. “We believe USDA is misguided in using traditional economic models to determine acreage this year,” said Rich Nelson, chief strategist for Allendale, Inc. “Acreage changes this year will be determined by one issue: cost to plant.”

Mark Gold of Top Third Ag Marketing agreed. “The American farmer is looking for where he can make money. He thinks he can make more money with soybeans than with corn,” Gold said. “He is not going to let his land go idle.”

 

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