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Crop shortfalls will provide commodity market stimulusCrop shortfalls will provide commodity market stimulus

Mother Nature will be force behind improved ag marketsConsumer demand can't deplete surplusU.S. economy improving 

Ron Smith 1

October 31, 2016

5 Min Read
<p>Mike Woods, head of the Oklahoma State University Agricultural Economics Department, greets speaker Terry Barr at the recent OSU Rural Economic Outlook</p>

Any improvement in agricultural markets in the near term will come through crop shortfalls, not increased consumer demand, says Terry Barr, senior director of industry research for Knowledge Exchange Division, CoBank, ACB.

“Look to Mother Nature for breakout demand improvements,” he said at the recent Oklahoma State University Extension Rural Economic Outlook Conference on the Stillwater campus. Global economies, including developing and developed nations, are growing — if at all — at a “subdued rate,” he says.

China’s economy, for instance, is currently growing at a 6 percent annual rate, an enviable pace compared to much of the rest of the world, but far below the double-digit growth rate that characterized China until recently.

The U.S. economy will likely grow at 2 percent,” Barr says. That’s an improvement from recession levels, but below a more robust target of 3 percent. “A 2 percent growth rate is not bad; we have to get accustomed to this new reality.”

Globally, he says, emerging markets have plateaued, and “Growth in demand is not likely to match production over the next few years.” Agriculture, as well as other industries, must adapt business strategies,” Barr says. “During the last decade, procrastination in marketing was rewarded. This year, it will be penalized. Agriculture is more dependent on exports than was the case 10 years ago, and is more affected by global developments.”


Influences include high debt loads on developed countries. Also, a rising anti-globalization sentiment poses a threat on agricultural trade. “Both U.S. presidential candidates backed away from trade agreements — and that’s not a position that’s good for agriculture.”

An election cycle across the globe, not just in the U.S., “sets the stage for agriculture product demand influences,” Barr says. “I don’t see a take-off in growth in either Europe or Japan. The level of optimism coming out of the U.S. election will not be high.”

It’s a global concern, he says. “The global economy can’t avoid major structural and geo-political issues forever.” Pointing to Britain’s decision to leave the European Union, he says, “Elections in France and Germany in 2017 will be divisive, with rising anti-globalization sentiment.”

Currently, Eurozone growth remains weak, as does Japan’s, estimated at 1 percent. “Chinese growth is likely to remain subdued as advanced economies remain weak. China’s currency is likely to weaken to maintain competitive positions. Debt level is a big challenge.”

Emerging markets remain weak, Barr says, as commodity prices decline and trade volumes decrease. Volatility of currency remains an issue. The U.S. dollar continues to move higher. From 2002 until 2011, the dollar declined by 40 percent — “a big effect on commodity customers. Since 2011, the dollar is up 30 percent, a price increase to U.S. customers. We see geopolitical turmoil in many regions.”

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The U.S. economy continues in the fourth longest recovery in history, Barr says, but is under- performing. “The economy is expanding, but not enough to create a significant increase in economic growth.”

Some of the economic malaise, he says, is being offset by U.S. consumer spending. “Consumers are more comfortable with debt levels; incomes are rising; home prices are improving; and equity markets are near record levels. Net worth has recovered, and remains at record levels. Discretionary income is higher, aided by lower gas prices and lower debt service, but wage and job growth remain issues.”

An increase in discretionary income is important for animal protein and dairy markets, he says. Other key indicators include an increase in credit card use and increased auto sales — which may be reaching a plateau.

“We’re beginning to see improvement in the employment rate and wage rates are picking up,” but corporate capital investment remains weak. “In this environment, they prefer to sit on it — we see a lot of capital on balance sheets.”

Barr expects to see energy prices increase slightly, with oil in the $50 to $60 range. “That will bring back some shale activity, but not enough to create a breakout demand.”

U.S. Federal Reserve rate increases that took place in 2015 will be followed by others in 2016, he says, although he expects the current Congress to do little on fiscal policy. “That will be deferred to the next Congress — the budget deficit will be an issue.” He expects the deficit to rise sharply over the next few years “even if Congress adheres to sequestration.”


Against this backdrop of global economic uncertainty, Barr says, agriculture markets will continue to experience significant transitions. Global carryovers remain large, and stocks-to-use ratios are near record highs for wheat and cotton.

A few cents difference in commodity markets may be important for producers as they look for opportunities, he says, and lower feed costs will help animal protein and dairy producers. The economic realities offer agriculture some opportunities “as supply chains, from farmers to retailers, realign to new domestic and global market realities.”

Adopting technology will be important, Barr says, and precision agriculture and data mining will become essential business practices for producers. Regulatory and market demands also will exert an influence, and will affect “domestic and global supply chains from producers to retailers.”

Mergers will continue and will accelerate as cooperatives take advantage of economies of scale. “Mega mergers — Dow-DuPont, ChemChina-Syngenta, and others already in the pipeline — will change the input supply chain.”

Barr says farmers will need to be flexible and try to maintain a strong balance sheet. “It is an interesting time to be in agriculture.”

About the Author(s)

Ron Smith 1

Senior Content Director, Farm Press/Farm Progress

Ron Smith has spent more than 40 years covering Sunbelt agriculture. Ron began his career in agricultural journalism as an Experiment Station and Extension editor at Clemson University, where he earned a Masters Degree in English in 1975. He served as associate editor for Southeast Farm Press from 1978 through 1989. In 1990, Smith helped launch Southern Turf Management Magazine and served as editor. He also helped launch two other regional Turf and Landscape publications and launched and edited Florida Grove and Vegetable Management for the Farm Press Group. Within two years of launch, the turf magazines were well-respected, award-winning publications. Ron has received numerous awards for writing and photography in both agriculture and landscape journalism. He is past president of The Turf and Ornamental Communicators Association and was chosen as the first media representative to the University of Georgia College of Agriculture Advisory Board. He was named Communicator of the Year for the Metropolitan Atlanta Agricultural Communicators Association. More recently, he was awarded the Norman Borlaug Lifetime Achievement Award by the Texas Plant Protection Association. Smith also worked in public relations, specializing in media relations for agricultural companies. Ron lives with his wife Pat in Johnson City, Tenn. They have two grown children, Stacey and Nick, and three grandsons, Aaron, Hunter and Walker.

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