The U.S.-Mexico-Canada agreement, U.S. Japan trade deal and the Phase 1 arrangement with China provide positive signals for farmers going into 2020, but Rob Johansson, chief USDA economist, still sees challenges ahead for the farm economy.
Johansson said expects another year of soft prices. USDA is forecasting $3.30 per bushel corn prices and $8.80 per bushel soybean prices going into 2020, which will be impacted by weather and market conditions in South America.
“Signals are pointing to positive signs for a lot of producers. Interest rates remain relatively low. That’s keeping borrowing costs down. There is a lot of debt out there, but it is easier to finance than it has been in previous years. That’s a good sign.
“But there are some tough situations out there. Breakeven prices, particularly for corn and beans at $3.60 and $8.80 are not going to get us there,” Johansson said in a question and answer session with American Farm Bureau Federation Chief Economist John Newton at the 2020 NASDA Winter Policy Conference at the Renaissance Arlington Capital View in Arlington, Va.
NASDA — or National Association of State Departments of Agriculture — is a non-partisan, non-profit association which represents the elected and appointed commissioners, secretaries and directors of the departments of agriculture in all 50 states and four U.S. territories.
Once again, the big driver in the global ag market in 2020 will be China. Johansson said that country is committed to purchasing a huge amount of farm products in 2020, and the United States is in a good position to help supply the market, but he said developing the market will take time, like steering a large freighter across the ocean.
“It takes a while to change trading patterns. We saw that a couple of years ago when the tariffs first started affecting U.S. producers. It took a little bit of time to find new marketing channels. Now that producers have found those, for the most part, being asked to go back to selling in a big way to China is going to take a little bit of time,” Johansson said.
The coronavirus is clearly slowing down trade with China. USDA is forecasting a 6% growth in trade with China, which Johansson said is on par with growth for the past two years. However, he added, the coronavirus has knocked that down to 4% to 4.5% for the first quarter of 2020 due to the virus outbreak.
“We expect within a quarter to have China rebound back to their normal growth. Hopefully, that’s what we’ll see,” Johansson said. “We’re expecting a big fourth quarter this year in sales to China. We should see positive signals showing up here as soon as we can get together and start getting our ships moving across the ocean.”
It will take China time to rebuild its hog herd after the African Swine Fever epidemic, so soybean demand will remain low until the herd can be rebuilt. “We would expect some fits and starts along the way, but certainly going forward the next two years, we’re expecting to see $80 billion of product going over there (to China),” Johansson said.
Right now, Johansson said the signals point to farmers planting more corn than soybeans in 2020. USDA expects higher prices for pork in 2020 and also forecasts higher prices for beef and dairy this year. Johansson said prices for poultry are expected to remain flat or slightly down this year. Johannsson emphasized that American consumers continue to spend less on food relative to people in other countries. Americans spend 5% of their income on food at home and another 5% for food in restaurants.
“We still expect real food prices over the next 10 years to be flat to declining, so producers are going to have to become more innovative and figure out ways to stretch out the balance sheet and find a way to make it work,” he said.
In meantime, Farm Bureau’s Newton said farmers continue to make great strides in sustainability and advances in precision agriculture while lowering their greenhouse gas impact. He said farmers are doing more with less.
Newton cited comments made by Secretary of Agriculture Sonny Perdue at the recent USDA Ag Outlook Conference where he set a goal for U.S. agriculture to increase productivity by 40% while cutting its environmental footprint by 50%. Newton said U.S. agriculture is well on its way to meeting that goal.
“When you look at the data, and we’ve crunched the numbers, on a per unit basis, agriculture is getting better every single year. Our contribution to greenhouse gases is less than 10%,” Newton said. “The challenge is we are sometimes a little bit too good in raising those crops and producing the livestock and that’s where trade certainly is a key component in making sure we have markets for all of the products we do produce because we are darn good at doing that."