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Not Liking Current Outlook
Tuesday, February 28, 2017 7:06AM CST

By Chris Clayton
DTN Ag Policy Editor

ARLINGTON, Va. (DTN) -- Tim Burrack kept moving from session to session at the USDA Outlook Forum looking for some light at the end of the tunnel for commodity farmers.

Whether it was income forecasts or the growing production strength in South America, Burrack eventually had to speak up and question the outlook for U.S. commodity farmers such as himself.

"What am I going to be selling commodities for in the future given the scenarios you have described?" Burrack asked an economist at the end of a panel discussion.

The cold, broad numbers from economists didn't offer much short-term optimism. Earlier in the day, Burrack heard USDA's forecast for national net farm income would continue declining in 2017 to about $62.3 billion, down about $6 billion from 2016. This is coming down from peak historical levels as recently as 2013 when net farm income was more than $120 billion.

Burrack, who farms in northeast Iowa, then sat through economists talking about projected production expansion in Argentina and Brazil. Argentina, for instance, wants to boost corn production 64% over the next decade to nearly 50 million metric tons. With that, Argentina then wants to see corn exports increase more than 80% over the next decade as well, from 21.7 mmt in 2015-16 to roughly 38 mmt. In comparison, the U.S. is projected to export 56.52 mmt in the 2016-17 marketing year.

Argentina and Brazil also have ambitious goals to boost infrastructure in the coming years to better move crops and livestock to ports.

Still, Argentina has a long way to go to upgrade overland shipping. Roughly 93% of that country's crops move to port by truck on poor roads. About 7% moves by rail, though there is no direct rail access to major ports. Argentina has ambitions goals to upgrade both its rail and roads and plans to spend $13 billion over the next four years to upgrade highways. A longer-term goal will increase rail connections to shipping capacity over the next decade.

Burrack said he derives 100% of his income from farming a couple thousand acres of mainly corn and soybeans. He was disappointed to hear that farm income might not get better until at least 2018 or 2019. Even then, USDA doesn't see a major jump in net income without a major weather problem hitting a top production area somewhere in that timeframe.

"If their numbers are correct, there isn't much light for changing the levels of commodity prices," Burrack said. "We could have low commodity prices unending in the future. The income outlook, it was depressing."

A common theme throughout most annual USDA Outlook conferences is that a major weather situation would kick-start prices. No such event appears in the works for this season. DTN Senior Meteorologist Bryce Anderson concurred.

"It is difficult right now to see any sort of widespread threat to crop prospects in the U.S. this year," Anderson said. "The Pacific Ocean temperature trend is warming and will possibly move to El Nino levels this summer; soil moisture in the major crop areas has some shortcomings but is not deeply deficient; and forecast models suggest that spring precipitation will be heavy enough to recharge the soil moisture profiles in the drier areas. The biggest potential issue could be the chance for field work delays in the northern crop areas where soils are saturated now and spring storms could disrupt planting, but such delays don't last very long. And in South America the trends are looking favorable for both Brazil and Argentina."

Farmers have a cost structure built on producing $4-a-bushel corn. Over the past two-plus years, farmers have lowered their costs to get by. That tightening of the belt wasn't supposed to keep going.

"You come out here and listen to the projections and it's '18-'19 -- maybe" when things turnaround, Burrack said. "When you hear what they are doing in South America with infrastructure development, maybe it's never."

Is the United States prepared to make the adjustments that are necessary, Burrack asked rhetorically. "My landlords have some serious readjusting to do, as do the equipment, seed and fertilizer companies."

After hearing Burrack express his worries about the near future, Professor C. Parr Rosson, head of the department of agricultural economics at Texas A&M University, offered a sage response. "Maybe I'm wrong," which lightened the initial thoughts. Rosson added, "The U.S. has always maintained a competitive agricultural system."

Rosson and others at the outlook conference pointed out the need to upgrade U.S. infrastructure. That's a goal of the Trump administration, though details are sparse on what the president wants to fix and how any plan will be funded. Rosson said some Southern ports, such as in Texas, are concerned about maintaining deep-water capacity so they can remain competitive. "There also are infrastructure issues up the Mississippi River system that service the soybean market, as well as corn that comes out of the Midwest," Rosson said.

As competitors such as Brazil and Argentina work on production, infrastructure and trade, Rosson added that U.S. policymakers need to better coordinate infrastructure and trade policy. He said the U.S. confronted a similar challenge in the mid-1980s when the U.S. dollar was at an all-time high. "Before we walk that tight path, we need to sit down with our policymakers and lay out these scenarios and give them something to think about that's very important to U.S. agriculture, as well as countries that are markets for our products and those countries with which we compete."

Even though the U.S. has opted to leave the Trans-Pacific Partnership, Rosson said he expects the U.S. will be back at the table with Japan and other major trading partners for agriculture working on bilateral agreements soon. Rosson pointed out the U.S. has more than 60 years invested in selling products to Japanese consumers. "The fact that we are out of TPP doesn't mean we have forgotten Japan, in my opinion."

Responding to a question regarding the Mexican corn market, Rosson stressed, "U.S. agriculture is still open for business." He pointed out U.S. agricultural exports to Mexico grew larger and faster than anyone expected after NAFTA kicked in. The original tariff rate quota for U.S. corn was 2.5 mmt, but corn exports topped 13.3 mmt last year. "I believe we're very competitive. We don't always have to compete on the lowest price. The U.S. does have a reputation as a high-quality supplier of food products and commodities. I think it's important during this time of trade policy repositioning that we don't send the wrong signal to the rest of the world, so that's why I say U.S. agriculture is still open for business."

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

(GH/AG)


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