Times have been tough for farmers the past several years, and it doesn’t look like this year will improve. CoBank research indicates 2019 will show a continued weakening of the ag economy with little chance of a comeback.
“Trade uncertainty, rising debt levels and market volatility are threatening to derail the global economy and creating difficult operating environments for U.S. agriculture,” said Dan Kowalski, vice president of CoBank’s knowledge exchange division in a recent press release. “Trade is the outsized risk. Unresolved disputes with Mexico, Canada, Europe and China are the greatest collective threat to the U.S. economy in 2019.”
The total value of U.S. ag exports in 2019 is expected to fall to $141.5 billion, down $1.9 billion from 2018, likely stemming from trade war tensions, according to USDA’s latest projections.
CoBank’s research says there are 10 key factors shaping ag and market sectors that serve rural communities:
- Trade-induced slowdown to hit U.S. shores. Trade policy between the U.S. and China is the leading risk to the global economy. In addition, rising debt threatens the global economy. Global debt, including public and private, is three time greater than it was in 200
- U.S. economic growth slows, risk accelerates. Recent history of U.S. economic expansion will soon turn a corner and growth will slow in 2019 and even more in 2020. Expect a slower housing market and weaker business investment to keep economic growth between 1.75% and 25% in 2019.
- Margin for error thins. The largest economies in the world are reeling from a slower-than-expected 2019. Gross domestic product forecasts have been cut as U.S. and Chinese economic outlooks darken. If the predicted slow-down occurs, it will be difficult for the Federal Reserve to raise rates without a spike in inflation.
- U.S. government challenges. It could be difficult to get legislation through a split Congress over the next two years. However, the passage of the 2018 Farm Bill shows parties will still work together when there is strong constituent support and engagement. Next, trade disputes with China and the USMCA need to be resolved and completed.
- Hight costs and debt hinder producers. In low-commodity price environments, rising input costs lead to more financial stress on farms when farmers already need to pinch pennies.
- Seeking ag trade resolution. Three significant trade-related issues need to be resolved before farmers will see ‘normalcy’ in the ag market: Legislative approval of USMCA, remove steel and aluminum retaliatory tariffs and improve trade with China.
- Competition in grain, farm supply and biofuel sectors. Major competitors for these sectors from outside the U.S., Brazil and Argentine crops and continued ag expansion in eastern Europe will continue to inundate an over-supplied market. Ag retailers will likely face price hikes from a smaller pool of suppliers.
- Output grows in dairy and animal protein. Beef is enduring the markets better than other animal proteins with favorable fed cattle prices and high packer margins. Dairy is suffering through an oversupplied market. Dairy and animal protein sectors will continue to expand in 2019.
- Data analytics a necessity in rural electricity. Data analytics will transform the rural electric co-op industry. If co-ops don’t use data to unlock value, third-party providers will pick up the opportunity.
- Broadband and rural communication opportunity for electric co-ops. In 2019 rural broadband networks will continue to expand.
While there are many challenges to the ag market in 2019, there is opportunity.
“There is a 50% probably that some form of a deal will be struck with China by the second quarter of 2019,” said Kowalski. “Also, there’s a 50% probability that most or all the tariffs will be lifted on U.S. exports in the first half of the year. Should that scenario develop, our outlook will improve considerably.”