Agricultural News
AFBF Economist Offers Grim Outlook for 2015
Mon, 12 Jan 2015 15:31:27 CST
The economic situation for ag producers is a mixed bag across agriculture and the outlook is highly uncertain. While cattle and hog producers received record prices and record returns in 2014, it was a different story for other commodities like corn and soybeans. American Farm Bureau Chief Economist Bob Young said we finally managed to catch up with the demand growth from ethanol and from China. Once supply meets demand that brings noticeably lower prices and he looks for that trend to continue in 2015.
"We are going to find ways for supply to catch up with demand on some products," Young said. "I think one of the challenges that the beef folks in particular are going to face is not so much they are going to put that much supply on the table, but it is going to be so much supply of other meats available, both poultry side as well as pork. That's just going to make it tough for beef to hold on to some of those prices in the retail sector."
In the first quarter of 2015, Young said he is already seeing that beef demand is being tested, along with increased pork and poultry supplies in the supermarket.
Farm Director Ron Hays talked with Young about the economic outlook for agriculture at the 2015 American Farm Bureau Convention in San Diego. Click on the LISTEN BAR below to hear their conversation.
While consumers are enjoying lower prices at the gas pump, lower crude oil prices also bring concern for the nation's energy sector. While some rural areas have enjoyed higher prices, Young said tougher times are ahead as drilling is reduced. He believes it will be a while before prices turn crude oil prices return higher and production increases. Lower oil prices are helping input costs for farmers, but so far that is not being reflected in fertilizer prices and he doesn't think fertilizer prices will reflect those changes until 2016.
On the other side of the equation, higher oil prices are needed to provide better returns for ethanol producers. Young said he looks for ethanol blending levels to hold steady as ethanol is often used as a octane enhancer. At this point the Obama Administration has not set the Renewable Fuel Standard level for 2014 and Young said it is hard to tell when that will happen.
Tax reform will continue to be a priority in Congress. The 2014 tax extenders package was passed in the final days of the last session, giving farmers only a few days to take advantage of that incentive in invest in their business. Young said that limited the economic impact to rural areas and Farm Bureau is hopeful Congress will make a better effort in passing an extension in 2015 giving farmers an opportunity to plan, make reasonable decisions and provide an adequate amount of time to have an effect.
During the annual meeting, AFBF President Bob Stallman discussed the management and privacy of "Big Data". Young said proper management of "Big Data" has the potential to have as much impact as hybrid or genetically modified seed as this allows farmers to make more informed decisions, reduce production costs and increase profit. In visiting with farmers that have already adopted the technology, he said they are seeing a 10 - 15 percent reduction in production costs and 10 - 15 percent increase in returns, thus resulting in a 20 - 30 percent net gain.
Looking ahead to 2015, weather looks to be the biggest driver of commodity prices and profitability. Young said with decent weather and reasonable yields it will be a tough year to make it cash flow. He doesn't think it would take much weather to move commodity prices higher, as a billion bushel change in the corn supply could move prices into the high $4 or low $5 range. The potential to bump soybean prices will be tougher with the large supplies in the U.S. and in South America.
"There is some potential for upside prices out there, but any kind of normal forecast or even yields like 2014, that would be enough," Young said. "We are going to be in a down cycle for a while,"
The biggest thing to watch this year is the situation in Russia. Young said he is closely watching what happens there, as it could be a major game changer based on the sanctions the U.S. has put on them, plus the collapse of their dollar and money flowing out of their country. He is worried what sort of political moves Russia will make at some point.
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