An improving outlook for economic growth and declining crop prices will generate mixed effects for rural America in 2014, according to CoBank's new Quarterly U.S. Rural Economic Review.
A growing economy should bolster demand for agricultural products, power and energy, and communication services. However, greater supplies of grain and other crop commodities will pressure prices and re-direct market forces in favor of processors and consumers. In previous years, limited supplies had elevated prices, which have benefited grain producers but penalized grain buyers. In the coming year, the animal protein and dairy sectors, grain handlers, and ethanol producers will benefit most from the transition.
Globally, supplies for most grain, fiber and oilseed commodities are hovering near record highs as well, with record output soon expected in South America. As world inventories grow, domestic agricultural markets will look increasingly to China, and other Asian importers, to determine if rising demand there for grain, dairy, and meat products can bridge or slow the widening gap between supplies and use.
CoBank's report, titled "Forward Progress Instills Guarded Optimism," also highlights major structural shifts unfolding in the rural infrastructure industries in 2014. Seemingly insatiable demand for cloud and broadband services are driving the entire communications industry toward an all-IP network. Also, steady increases in natural gas production have maintained downward pressure on natural gas prices, with far-reaching implications for the nation's electricity prices, the economics of coal-fired generation, and the competitiveness of renewable energy technologies over the long run.
"The global economy is not out of the woods yet but it's headed in the right direction," said Leonard Sahling, director of CoBank's Knowledge Exchange Division, which issued the report. "Incomes will steadily rise in 2014, and so will the demand for commodities and services. However, the rising economic tide will lift most ships, but not all. Crop supplies will increase, despite greater use, and will provide relief to some, while challenging others."
CoBank's Knowledge Exchange Division is a knowledge-sharing practice that provides strategic insights regarding the key industries served by CoBank. Knowledge Exchange draws upon the internal expertise of CoBank, deep knowledge within the Farm Credit System and boots-on-the-ground intelligence from customers and other stakeholders to enhance the collective understanding of emerging business opportunities and risks.
For a full copy of the report, click here.