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2018 could bring higher prices for farmers

Corn Prices
Corn acreage is expected to decline in 2018. Could prices rise?
Commodity prices could rise in 2018, but uncertainty still persists in markets, costs and policies.

EDITOR'S NOTE: In this article, Part 2 of the farm economy outlook, we look forward to what economists say we should expect in 2018

By the time you read this, the big ball in Times Square will have fallen. Celebrations and family get-togethers to cheer in the New Year are over, and now we are all settling into a brand new year.

Chances are, you have already asked yourself what the new year will bring.

One thing for certain, farmers and most Americans know changes are coming. Congress has passed a sweeping tax bill, and President Trump signed it into law a few days before Christmas. While there remains a great deal of confusion on just how the new legislation will affect the nation's wage earners, most farm support groups have lauded the legislation as beneficial to farmers.

While not all things that glitter are gold, farm operators should enjoy some promising benefits as a result of the tax reform bill of 2017. Before putting the cart before the horse, some large issues are looming and could offset the benefits of new tax reforms, specifically the rocky road ahead to a new farm bill. Also of concern are issues involving the North American Free Trade Agreement (NAFTA) and other trade issues that could cause agriculture to suffer if Washington fails to tread carefully on new trade policies.

Maybe Tax Reform Will Help Ag

Most economists agree, the future may be bright for farmers and livestock producers in terms of tax reforms, but the emphasis is on the term "maybe." The new farm bill, trade issues, commodity prices, the cost of inputs, cash rents, property values and other issues will be the determining factor of whether the new year will be good or bad. It appears to be a classic wait-and-see moment that will play out over the next several months before a definitive answer to that question can be answered.

Meanwhile, while the U.S. Senate takes up the issue of a third round of disaster assistance when they return to the Hill on Jan. 8, there is growing concern that regardless what aid package gets the nod by lawmakers, it is still going to fall short in bringing sufficient relief to farmers and ranchers who suffered the most through a tumultuous year of multiple natural disasters.

While no one can predict with certainty whether 2018 will be good or bad for farming, agricultural economists are still offering their opinions on a number of trends for specific costs of materials and goods, like the cost of fuel, fertilizers, seeds, cash rents, land values and so forth, all of which will come into play as producers move forward through the year.

Economists are trying to figure out how the cost of inputs and commodity prices will affect the bottom line for farmers.

A Year of Uncertainty

Many would argue every year is a time of uncertainty as volatile markets ebb and flow and input costs go up and down for a number of reasons.

Craig Dobbins, an economist at the Agricultural Economics Department at Purdue University, said recently that reducing input costs has been a priority for farmers over the last four years, but cash rents are slower to come down.

"Reductions in cash rents have occurred. The cash rent per bushel of corn in 2013 was $1.43, but we project [that] cash rent for 2018 will end up around $1.13 a bushel, down 21 percent over the last four years," Dobbins said.

Also, corn farmers have produced record crops three of the past four years. With ending stocks carrying over, 2017 will end up with one of the lowest average marketing prices in years. But corn acres are expected to decline in 2018, meaning a possible return to more profitable prices will be possible over the next three years.

Mark Welch, grain marketing economist for Texas A&M AgriLife Extension Service, presented his wheat market outlook for 2018 at the Texas Wheat Symposium in Amarillo in November and predicted the price U.S. growers may receive in 2018 boils down to continuing world consumption to move through the large carryover on the world market.

"While the drought in the northern High Plains helped rebound the price for some [over the last two years], from $3.89 a bushel in 2016 to about $4.60 in 2017, it may not be a sustainable bounce," Welch said.

Looking forward, he said if world wheat acres go down as expected and demand and consumption increases according to trends, and if yields return to normal production levels, wheat carryover should drop, and he said wheat prices in 2018 could be bullish in the new year.

Lower Cotton Prices

For cotton, prices in 2018 may fall as a result of expected carryover. USDA was expecting little more than 21 million bales for 2017 with an estimated 5.5 million bale carryover. Texas A&M economists say if U.S. cotton production in 2018 falls to around 12 million bales, it would balance supply and demand and provide a healthy market for producers.

John Robinson, Texas A&M University Extension cotton economist, says because of market uncertainty, he is advising producers to be ready to take advantage of unexpected rallies, but to be wary of unexpected sell-offs.

The consensus among economists concerning soybeans this year varies slightly, but most agree if production levels and demand remain steady in 2018, soybeans should continue to be promising. Confidence in soybeans may be fueled by insurance guarantees, provided the safety net doesn't change. Purdue economist Chris Hurt says even with more soybean acres expected next year, futures markets are suggesting a 2018 price that is at least 30 cents to 40 cents higher.

For livestock and poultry producers, USDA is forecasting all animal protein production in 2018 to show across-the-board increases, with the exception of veal and lamb, according to USDA's latest “Livestock, Dairy & Poultry Outlook” report. Total red meat production in 2018 is forecast to be 54 billion pounds, 2.8 percent more than expected.

For beef producers, fourth quarter rallies to close out 2017 offered some confidence to many, but Oklahoma State University livestock specialist Derrell Peel says while demand is expected to rise in 2018, rising beef prices may slow in spite of off-and-on rallies in the markets. The success of beef and subsequently beef prices will depend heavily on the outcome of trade talks with Mexico, Canada and China.

Input Costs

When it comes to input costs on the farm, unless things change, economists say prices will vary for materials, including seeds, chemicals and fertilizers. Acquisition of new equipment will come with steady-to-slightly-higher prices, and agriculture producers and consumers alike could see a steady but moderate rise in the cost of technology. The trend to keep input costs as low as possible is expected to continue, good for producers but not so much for suppliers.

The price of oil recently ticked above $60 for the first time in two and a half years, just before the end of the year, and that means gas prices, which were already elevated for the holidays, will probably continue to rise during the first quarter of 2018. For southern growers, that means higher fuel prices for planting season. Where fuel prices will go from there is much harder to predict.

In the summer of 2017 oil was selling at $45 a barrel, but at the close of the year prices had risen considerably over six months. If that trend should continue, economists agree it's not impossible to see the average pump price for unleaded fuel reaching $2.70 a gallon or more by harvest season. But most analysts agree a lot can happen to change that, not the least of which may be stepped up domestic oil production as areas previously closed to exploration open up under the Trump administration.

Another area of concern is the cost of travel. If you are planning a family vacation or attending a conference this year, the price of fuel and the cost of hotels and lodging and prices for entertainment attractions are expected to rise.

Construction costs are also expected to rise in the new year, nearly 4 percent by some estimates. Economists say the jump is in response for the demand on building material, some in short supply as rebuilding efforts in Texas and Florida continue after damages caused by Hurricanes Harvey and Irma. It didn't help that Canadian lumber prices jumped before those disasters as a result of higher duties, as much as 24 percent at the border.

Also expected to be slightly higher will be food costs at the grocery store, but, overall, the increases are expected to be modest for most food products. The cost of health care, physician services and hospital costs, and the costs of medicines are expected to rise, in some cases sharply over the course of the year.

TAGS: Outlook
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