USDA long-term projections encouraging for Canadian ag markets
The downturn in the U.S. farm economy is projected to continue in 2018 with a decline in U.S. farm income of 6.7%, driven mostly by soft growth in commodity prices and steady increases in production costs.
Yet, the USDA 10-year projections paint a mildly encouraging picture for agricultural markets. Demand will remain strong amid growing supplies. Global economic growth is expected, largely on the basis of income growth in developing economies. That will drive increased demand for food and exports.
Canada should benefit two ways. Continued strength in the USD will weaken U.S. competitiveness in global markets, perhaps even leading to their loss of market share—good news for Canadian producers. And because most commodity supply chains in the U.S. and Canada are well integrated, projected U.S. commodity prices, expected to rise, albeit marginally, on that growing global demand, may signal a future boost in Canadian farm income.
Grains and oilseeds
U.S. corn acres are projected to record a one-time bump in 2018-19 and then steadily decline
Fewer acres combined with a steady increase in the demand for U.S. corn imply that corn prices will rebound from a bottom reached in this current marketing year (2017-18). The price rebound is forecast to be limited because of the projected increase in yields.
Seeded acres of soybeans will trend higher for the next 5 years and stabilize thereafter
U.S. prices should remain in the mid-$9 range. Soybean net returns should exceed corn net returns on a per acre basis, thanks largely to the strong foreign appetite for oilseeds.
Wheat prices will rebound post-2018
Decreased U.S. plantings in 2018 combined with a strong export demand results in wheat prices showing upside starting in 2019.
Beef, pork and poultry
Beef production to continue expanding
The recent U.S. cattle herd expansion is not projected to slow down despite a projected decline in profitability indicated by a lower ratio of cattle-to-corn prices.
The U.S. pork sector should grow almost as fast as beef
Pork and beef production numbers go head-to-head over the next ten years, with beef production slightly edging pork by 2027. Yet, pork production is expected to remain more profitable than beef.
Broiler production growth should slow relative to the last ten years
Per capita broiler consumption is expected to level out within the next 5 years. Global export demand will largely drive the production growth.
U.S. milk production will grow annually by 1.6%
This production growth happens despite the U.S. price of milk steadily declining between now and 2022. The U.S. price of non-fat dry milk is expected to rebound in 2019.
Uncertain trade negotiations, rising interest rates and volatility in financial markets make forecasting hazardous. But you can still use these long-term projections to calculate profitability under different scenarios of lower and higher prices.
Watch for Amy Carduner’s post next week from the USDA Outlook conference.
J.P. is the Vice-President and Chief Agricultural Economist at Farm Credit Canada. Prior to joining FCC in 2010, J.P. was a professor of agricultural economics at North Carolina State University and Laval University. He also held the Canada Research Chair in Agri-Industries and International Trade at Laval. J.P. is Past-President of the Canadian Agricultural Economics Society. He obtained his Ph.D. in economics from Iowa State University in 1999.