Let’s face it, trying to forecast the future just became much, much harder. The COVID-19 outbreak has all but frozen the global economy.
Yet, taking the long view at agriculture can provide some guidance. The outlook for the U.S. farm economy depends on the implementation of new trade agreements and the evolution of animal and human disease outbreaks, according to the 2020 U.S. Baseline Outlook report compiled by Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri.
Here are four key farm economic drivers that will affect the next 10 years.
U.S. and Global Economic Growth
Economic growth in the U.S. slowed in 2019. That trend is expected to continue, especially in light of the COVID-19 outbreak, which has increased economic uncertainty and has contributed to stock market volatility and the Federal Reserve’s decision to lower interest rates.
If economic growth were slower than assumed in the baseline, the result would be weaker demand and lower prices for most (if not all) agricultural commodities, according to FAPRI.
Net Farm Income
Net farm income is projected to increase for the fourth straight year in 2020, but an alternative measure, net cash income, declines in 2020, according to FAPRI. Higher cash receipts in 2020 are offset by lower government payments due to the assumed end of MFP.
The two farm income measures differ primarily because net farm income includes changes in the value of farmer-owned inventories. Reduced crop production in 2019 resulted in a large negative value of inventory change.
The farm debt-to-asset ratio has been increasing since 2012, reaching 13.5% in 2019. FAPRI projects it to reach 15.4% by 2029.
Farm real estate values and total assets are projected to peak in 2021, with little change in the following years. Farm debt continues to increase. This is not the 1980s, FAPRI acknowledges, since the U.S. debt-to-asset ratio and interest rates are far lower today. But many producers are experiencing financial stress.
African Swine Fever
African Swine Fever (ASF) has sharply reduced hog numbers and pork production in China and other countries. FAPRI assumes China’s pork production will continue to decline in 2020 and 2021, but then increase steadily.
Reduced pork production in China increases demand for meat imports but reduces demand for soybean meal and other feeds. ASF is an important reason why the baseline and phase-one scenarios do not project higher crop prices.
2020 Acres and Prices
FAPRI also provided a forecast for this year’s planted acres, production and prices.
Corn: 92.9 million planted acres, similar to what farmers reported they intended to plant in 2019. With trend yields, 2020 corn production increases to 15 billion bushels, putting downward pressure on corn prices, which are projected to average $3.57 per bushel in 2020/21.
Soybeans: 86.5 million acres, which is 10 million acres higher than 2019’s level. Before considering possible impacts of the phase-one trade agreement, the increase in production drops projected soybean prices to $8.48 per bushel for the 2020/21 crop.
Wheat: 45.4 million acres and projected wheat prices of $4.69 per bushel for the 2020/21 crop.
“Macroeconomic assumptions are based on January forecasts by IHS Markit, which suggested moderate growth in the U.S. and global economies at that time,” says Patrick Westhoff, director of FAPRI. “Those forecasts were prepared before much was known about the severity of the coronavirus (COVID-19) outbreak and before recent declines in stock market prices and interest rates.”
Read the full 2020 U.S. Agricultural Market Outlook from FAPRI.