COLUMBIA, Mo. — The 2019 University of Missouri Crop Management Conference, held Dec. 17-18 in Columbia, included speakers talking about a variety of topics from agronomy to marketing.
Scott Brown, an ag economist with MU, spoke about the outlook for ag markets and several factors that could impact them in 2020.
What producers saw in 2019 gives context to the 2020 outlook.
“Sometimes I say the best thing about 2019 is seeing it in the rear-view mirror,” Brown said.
The U.S. farm income in 2019 is about $8.5 billion above 2018, Brown said, with livestock farm income running about even with the year before while crops are a little higher. He said the Market Facilitation Program government payments were a big part of the increased farm income, and it’s hard to project what role those will play in 2020.
The U.S. and China have announced they reached a “phase one” trade deal, and the MFP payments were given out due to tariffs and the impact of trade wars. USDA officials said they did not expect to continue the program in 2020, and Brown said an agreement could mean big changes to the MFP structure in 2020. Also, some of the impact of MFP payments may have gone to input costs and cash rents.
“It’s always tough to figure out how to provide help without other implications of those payments,” Brown said.
The 2019 government payments were at rates not seen in years.
“It’s the first time since the mid-2000s we’re talking about that level of payments,” Brown said.
Another key factor for producers will be signup decisions for ARC and PLC.
“Producers are going to sign up for 2019 and 2020, and then every year after that they can change the selection,” Brown said.
This gives producers more options — although it gives them more opportunities to be upset they made the wrong selection — but Brown said he doesn’t expect either program to pay a lot on a per-acre basis, so the stakes might not be tremendously high.
Brown said farmers’ choices might come down to their outlook on crop prices. If they are more pessimistic about what will happen, PLC could be a good choice, while people with more optimistic outlooks might be more drawn to ARC. Another way of looking at it is what risk farmers are protecting. PLC protects price, and ARC protects yield, Brown said.
It can also be a good idea to update yields with the FSA for 2020, he said.
Brown said the ARC-Individual Coverage option could be something to consider if farmers think they’ll have a farm that might be 100% prevent plant, such as land behind levees that haven’t been repaired yet. The key is to ask questions and evaluate their particular situation.
“It’s just going to be different for everybody,” he said.
The key factor in 2020 will continue to be how trade deals work out.
“If you want to be optimistic about 2020, it probably has to start with trade deals,” Brown said.
While the U.S.-Mexico-Canada Agreement will help stabilize and ensure access to existing trade markets, Brown said the recently ratified trade deal with Japan could be a “sleeper” when it comes to having big impacts for producers.
“It’s more important for beef and pork, but it provides an increase in feed use,” he said.
A trade deal with China could “provide a huge lift to markets,” Brown said. U.S. pork to China currently faces a 73% tariff.
“You can hardly face a 73% tariff and be competitive,” he said.
China is also dealing with African swine fever, which has greatly reduced the country’s number of sows. China is projecting a 19 million metric ton (MMT) decline in pork production, and a 17 MMT decline in pork consumption. Brown said this means they will have to import more to make up the difference, and the pork consumption might not increase that dramatically, meaning more exports.
The entire U.S. pork production is about 12.5 MMT. Lower tariffs and dramatic increases in exports to China could mean record pork prices, Brown said. Pork producers are ready to meet big export need, but they also require increased demand.
“When you see the outlook for hog prices in this country, it’s either going to get really good, or it’s not, because we’re producing a lot of pork right now,” he said.
For any ag market, Brown said there will probably be a lot of sideways action in 2020, but there are opportunities for producers to lock in profits in volatile markets.
“Volatility in futures markets, by the way, gives us an opportunity to lay off the risk to someone else,” he said.
The export situation for corn and soybeans is somewhat different, Brown says. Corn exports are less dependent on any one country. The “rest of the world” category beyond the top corn importers remains a big part of the overall picture. For soybeans, however, China is a huge part of the overall global market.
“The ‘rest of the world’ makes up a large percentage of global corn imports, making it difficult for one country to have too much influence with trade implications,” Brown said. “That’s good for corn.”
Brown said a big drought could have a short-term impact on crop prices, but overall production remains robust. Land remains in production. This year did see a reduction in corn and soybean stocks.
“If not for major weather events, we grow big corn crops,” he said. “We need demand to grow. Feed, ethanol, exports — we need something to go up. I think feed use will go up. I think exports could grow. But we need all those demand categories going up to get higher prices.”