Outlook (Finally) Looking Brighter For Farmers

The farming economy is looking up, and that is something that farmers can’t say they’ve seen in a while.

Late last week during the United States Department of Agriculture’s (USDA) Outlook Forum, the agency made a strong forecast for planting acreage for corn and soybeans. The USDA predicts that farmers will plant 92 million acres of corn and 90 million acres of soybeans this spring. The USDA also projected wheat acreage at 45 million acres.

If accurate, that would represent an increase of corn by 1.2 million acres and soybeans by 6.9 million acres. It would the largest corn acreage plantings since 2016. Soybeans would be only slightly lower than the record of 90.2 million acres set in 2017.

The report had good news for meat producers as well. Total red meat and poultry production in 2020 increased to a record 106.5 billion pounds, despite facing unprecedented challenges due to the global COVID-19 pandemic. Pork and broiler production increased in 2020; however, beef production was virtually unchanged. For 2021, total red meat and poultry production is forecast to increase about 1% to 107.6 billion pounds driven primarily by record production of beef, pork, and broiler meat.

In 2020, livestock and broiler prices were lower, reflecting reduced packer demand in the second quarter of the year. Nonetheless, prices did rebound in the second half of the year but averaged lower than 2019 prices on an annual basis. For the coming year, growth in demand is expected to support higher livestock and poultry prices, despite expected increases in production.

Farm Lenders Optimistic

The Outlook Forum only improved the optimistic future of the farming community. Two weeks prior, the Federal Reserve Banks of Chicago, Kansas City and Minneapolis released updates regarding farm income, farmland values and agricultural credit conditions and see some sunny spots on the horizon.

The farm lenders are finding the agriculture economy in the best shape in years according to their latest reports. Since 2014, the farming sector has been in a seven-year rut of dumpster-level commodity prices. The shuttering of restaurants and schools in 2020 didn’t help the situation with some farmers plowing their crops into the ground rather than harvesting.

Thanks to a rally in the grain markets, more farmers will finally have an excuse to break out their black pens and put away the red. Prices for corn, soybeans and wheat have jumped to their highest levels in over six years thanks to dry weather, strong export demand from China, well as domestic processing industries which make animal feed and biofuel.

The Chinese purchases are a 180 from two years ago when the country had all but ceased buying from American stockpiles during the trade war. At that time, soybean stocks stood at a record 909 million bushels. The latest USDA forecast calls for those supplies to shrink to 140 million bushels.

“Soybean exports are forecast $1.1 billion higher, to a record $27.4 billion, due to strong demand from China and higher prices,” said the USDA. China is the nation’s largest importer of soybeans, importing 60% of the the country’s soybean exports. In the final three months of 2020, China bought a record $14.4 billion worth of U.S. ag products. If the USDA’s projections are correct, that would once again make China the number one customer for U.S. ag exports.

Last year saw income rise in large part to federal supports by the Trump administration. Thanks to the aid, which constituted 40% of farmer income in 2020 and was a 107% increase in direct payments from the year prior, more producers were able to keep their operations afloat. Federal court bankruptcy data indicate that Chapter 12 family farm and family fishery bankruptcies totaled 552 filings during 2020, down 43 filings, or 7%, from 2019. However, that number was still the third highest over the last decade.

“Government payments provided broad support through the year and, together with recent price increases, the near-term outlook for the farm sector improved dramatically,” said the Kansas City Fed in their Ag Credit Survey released two weeks ago. “It was an about-face “after nearly eight years of deterioration.”

In all, net farm income in the nation is expected to increase 43% from 2019 to $119.6 billion, according to the USDA. Farmers will see the highest level of net farm income, a broad measure of profitability, since 2013.

In the Ag Credit Survey, authors Nathan Kauffman and Ty Kreitman reported that “Overall, agricultural conditions in the first quarter of 2021 in the Kansas City Fed region were poised to remain strong for the first time since 2013…A majority of respondents reported that incomes of farm borrowers were higher than a year ago for the first time since 2012.”

Likewise, the Minneapolis Fed said its survey, released at the same time, found 60% of bankers “predicting further growth in farm incomes and spending” in the first quarter of 2021.

The new outlook is a reversal from previous years in which immense supplies bottomed out prices as well as farm income. Now the opposite is true, with some farmers even signing contracts to sell their crops before they are even harvested. Though some are holding out, anticipating higher prices later in the year.

However, rising income is also bringing new questions for the Biden administration: should payouts continue with burgeoning sales? While government subsidies are a essentially a tradition in the farming sector, last year’s record payouts make some wonder if enough is enough.

“These farm subsidies need to be curtailed,” Anne Schechinger, senior economic analyst at the Environmental Working Group, told Politico. “So many Americans are still struggling with the pandemic-induced economic crisis, but farmers are really doing well.”

Most likely, further discussions on the matter will await the Senate confirmation of Tom Vilsack to the USDA’s head role. Thus far, Vilsack hasn’t shown his hand as to which direction he might take. That vote is expected later this week.

Farmland Values Look Promising

In their report, the AgLetter, the Chicago Fed said Midwestern farmland prices at the beginning of the 2021 were up 6% from that time last year and was, “the largest such gain since 2012.” The report went on to say that “(E)ven with inflation taken into account, District farmland values had an annual increase of almost 5% in 2020; this increase in real terms was the first one since 2013.”

“For the first time since the first quarter of 2011, a majority of responding bankers, 58%, predicted farmland values would go up in the next quarter, in this case, the first quarter of 2021,” said the Chicago Fed. “Notably, none of the survey respondents predicted farmland values to go down.”

In his Agricultural Economic Insights blog, Brent Gloy writes that “(t)he two major factors driving farmland prices – income and interest rates – are both moving favorably. The farm economy in 2021 has started on a high note, with the farmland market poised to head higher.”

After almost a decade of battering, its now looking possible that farmers might be able to finally get through a year with fewer bruises.