Farm Horizons, April 2017

Ag Outlook Forum projections

By Kent Thiesse
Farm Management Analyst

Each year in late February, the US Department of Agriculture “Ag Outlook Forum” takes place in Washington, DC.

The Ag Outlook Forum is usually the first USDA projection for expected crop acreage for the coming growing season, as well as other current economic conditions in the agriculture industry.

The latest forum was no different, with projections for significant increases in US soybean acreage for 2017, as well as forecasts for continued tight profit margins and reduced farm income levels for the coming year.

US crop acreage projections

• Total US acreage planted to the eight major crops in 2017 is estimated at 249.8 million acres, which is down 1.4 percent from 253.4 million acres in 2015, and is at the lowest total US crop acreage in the past six years (2012-17).

• US corn acreage is estimated at 90 million acres for 2017, which is down 4.3 percent from 94 million acres in 2016, but is still above the 88 million acres planted in 2015.

USDA is projecting a trend line 2017 corn yield of 170.7 bushels per acre, which would result in an estimated total US corn production of approximately 14 billion bushels.

• US soybean acreage in 2017 is expected to increase by 5.5 percent to 88 million acres, as compared to 83.4 million acres in 2016, and is well above the 82.7 million acres in 2015.

USDA is estimating the 2017 trend line soybean yield at 48 bushels per acre, down from the record US soybean yield of 52 bushels per acre in 2016; however, with the likely increase in acreage, total 2017 US soybean production is projected to exceed 4.1 million bushels.

• Wheat acreage in the US in 2017 is projected to be the lowest in the past six years, at 46 million acres, which is a decline of 8.3 percent from 50.2 million acres in 2016.

• Cotton acreage in the US is expected to increase by 14.2 percent in 2017 to 11.5 million acres, as compared to 10.1 million acres in 2016, and 8.6 million acres in 2015.

• Total 2017 US acreage planted to sorghum and other feed grains is estimated to be 11.7 million acres, which is a decline of 7.1 percent from a year earlier.

• Total acreage in the Conservation Reserve Program (CRP) is 23.5 million acres in 2017, which compares to 29.5 million acres as recently as 2012. The 2014 Farm Bill capped the maximum CRP acreage at 24 million acres.

Most grain market analysts predicted 2017 crop acreage totals similar to the USDA acreage projections, with increased soybean acreage, and reduced acreage for corn and wheat.

The analysts expect this scenario to put some market pressure on the soybean market in the coming months, particularly if we get favorable growing conditions.

On the other hand, the reduced 2017 acreage for corn and wheat could create some pricing opportunities in future months for the 2017 crop, especially if there are any production challenges.

Besides the monthly USDA Supply and Demand Reports, the next important USDA crop data will occur with the USDA “Planting Intentions Report” Friday, March 31.

Farm income forecast

USDA is projecting the inflation-adjusted US farm income for 2017 to be at the lowest level since 2002; however, USDA also pointed out that overall farm debt-to-asset ratios continue to remain at very low levels.

Most observers agreed that the overall financial health of US agriculture is in better shape than was projected at last year’s Ag Outlook Conference, but admitted that there still continues to be farm profitability concerns going forward.

There were some reports of farm operators being denied farm operating loans for the coming year; however, this was not seen as a widespread concern.

Some experts feel the biggest concern with farm operating loans may be for the 2018 growing season, especially if crop prices stay relatively low, and crop yields in the Upper Midwest return closer to trend line yields, following the record corn and soybean yields in Minnesota, Iowa, and other states in both 2015 and 2016.

Many farm operators have already reduced input costs and used up excess working capital to deal with tight crop production profit margins in recent years, so there may not be as much flexibility for adjustments for the 2018 crop year.

Economists at the USDA Forum expect farm land values in most major crop producing areas of the US to decline moderately in the next 12 months; however, they do not anticipate a sharp collapse in land values, similar to the 1980s.

In addition to level of farm profitability, increases in interest rates by the Federal Reserve in the next couple of years is also likely to have a negative impact on land values.

Many ag lenders reported much tighter scrutiny by federal and state bank examiners on agriculture-related loans, which could make ag credit more difficult for farm operators facing financial challenges.

However, most ag lenders also indicated that to this point, the number of problem ag loans has been quite manageable.

Most of the agriculture financial experts are expecting some tight margins and increasing farm financial challenges in the next couple of years; however, none of the experts were predicting a repeat of the farm financial crisis of the 1980s.

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