CoBank Quarterly Economic Outlook: Rising Output Compressing Agricultural Margins
October 12 2018 - 12:00PM
Strong growth in both the U.S. and global economies will support
increased demand in domestic and export markets through the end of
the year. However, U.S. competitiveness is currently constrained by
trade uncertainties and the elevated value of the U.S. dollar,
further placing pressure on the agricultural economy as output in
most industries rises.
The latest Quarterly Rural Economic Review from CoBank’s
Knowledge Exchange Division indicates that any significant farm
price improvements over last year’s prices will be limited,
particularly with record U.S. yields for many of the major crop
commodities adding to available supply levels. Meanwhile, the
animal protein and dairy sectors continue to benefit from strong
domestic demand and the promise of better access to Mexico and
Canada, but will need more export market growth to absorb their
current pace of output and expansion.
“Agricultural markets are being squeezed as prices remain weak,”
said Dan Kowalski, vice president of CoBank’s Knowledge Exchange
Division. “While recently negotiated trade deals show some upside
for agriculture, global demand for output from the U.S. agriculture
sector is being outpaced by current U.S. production.”
CoBank quarterly economic reviews provide updates and market
outlooks covering several topics and industries, including: Global
and U.S. Economic Environment; U.S. Agricultural Markets; Grains,
Biofuels and Farm Supply; Animal Protein; Dairy; Other Crops;
Specialty Crops; and Rural Infrastructure Industries.
Key Factors and Findings
The CoBank report reveals that the escalating trade war with
China is the leading risk for U.S. agriculture and that retaliatory
actions taken by China and other trading partners have raised
concerns of long lasting effects on agricultural supply chains.
However, U.S. Department of Agriculture assistance to farmers and
ranchers suffering hardship may have a modest impact on farm
financial conditions.
Other key findings include:
- Sustained growth in emerging markets will support increasing
demand for higher value products such as animal protein, dairy and
specialty crops.
- With the trade environment in flux, the U.S. economy remains on
strong footing with tax reform and increased government spending
providing significant fiscal stimulus.
- In specific commodities, 2019 could see record yields for U.S.
corn, soybeans and cotton, which is boosting supplies and limiting
price improvement. For wheat, concerns about production shortfalls
in the EU and FSU regions have pushed prices higher.
- The animal protein sector has benefited from low commodity
prices and excess supply, but trade concerns continue to weigh on
beef, poultry and pork markets. However, domestic consumer demand
remains stout for animal protein, although pork is experiencing the
biggest jolt caused by trade disputes and oversupply.
- Although the dairy markets have been weak, they continue to
show modest signs of improvement through the third quarter of 2018,
though producer distress remains, forcing some to exit the
business.
- The Federal Communications Commission announced the results of
the CAF II auction in August, which awarded $1.488 billion in
funding over the next 10 years to expand rural broadband access in
unserved areas across 45 states.
The full quarterly U.S. rural economic review, “Rising Output
Compressing Agricultural Margins,” is available at cobank.com.
About CoBank
CoBank is a $131 billion cooperative bank serving vital
industries across rural America. The bank provides loans, leases,
export financing and other financial services to agribusinesses and
rural power, water and communications providers in all 50 states.
The bank also provides wholesale loans and other financial services
to affiliated Farm Credit associations serving more than 70,000
farmers, ranchers and other rural borrowers in 23 states around the
country.
CoBank is a member of the Farm Credit System, a nationwide
network of banks and retail lending associations chartered to
support the borrowing needs of U.S. agriculture, rural
infrastructure and rural communities. Headquartered outside Denver,
Colorado, CoBank serves customers from regional banking centers
across the U.S. and also maintains an international representative
office in Singapore.For more information about CoBank, visit the
bank's website at cobank.com.
Jacob Morgan
CoBank
(303) 740-4062
jmorgan@cobank.com