Ag Economists Turn More Positive Longer-Term On the Farm Economy

This month's survey showed several key changes from June. Economists think USDA's current corn and soybean yield projections are still too high. The economists predict a drop in corn and soybean prices, but they say cattle and hog prices could nudge higher this year.
This month's survey showed several key changes from June. Economists think USDA's current corn and soybean yield projections are still too high. The economists predict a drop in corn and soybean prices, but they say cattle and hog prices could nudge higher this year.
(Lindsey Pound)

The July Ag Economists’ Monthly Monitor shows weather extremes and wild swings in the commodity markets are the two biggest factors impacting short-term outlooks, but the economists surveyed expressed a more favorable view longer-term. The latest survey also shows the biggest wildcard for agriculture over the next year could be geopolitical risks tied to China and the war in Ukraine.

This is the second survey of the Ag Economists’ Monthly Monitor, a joint effort between the University of Missouri and Farm Journal. The first-of-its-kind survey collects insights from ag economists across the U.S. Nearly 60 economists are asked each month to provide their forecasts and views. They represent a wide geography with expertise in grains, livestock and policy.

 

This month's survey showed several key changes from June. Economists say they believe USDA's current corn and soybean yield projections are still too high, and they anticipate a drop in forecasted corn and soybean prices. The economists in the July survey also predict cattle and hog prices could continue to climb higher this year. 

“To me, the biggest thing that sticks out in the July survey is the more positive view 12 months into the future relative to where we were in June,” says Scott Brown, University of Missouri agricultural economist who helps author the survey each month. "In the very short run, the economists are a little less positive than where they were in June. I think that has a lot to do with the weather and general market moves we've seen over the last few weeks."

net farm

The longer-term optimism revealed in the survey is despite economists' expectations for two consecutive years of declining net farm income, falling short of the record set in 2022. The July Monthly Monitor forecasts net farm income to fall to $132.8 billion in 2023, which is below the $134.7 billion in the June survey and USDA's current net farm income estimate of $136.9 billion. That's still a big drop from 2022, when USDA says net farm income reached $162.7 billion. 

This month’s survey also tried to peel back the layers of what commodities might be aiding the more positive long-term outlook versus weighing on the overall health of the ag economy in the short-term.

“On the crop side, it's positive to very positive,” Brown says. “There are a few in the negative category, but a majority of economists responded the crops side of the equation looks positive. Whereas, on the livestock side, we have more negatives than we have positives.”

Economists say there are several positive developments that could shape U.S. agriculture, such as continued productivity and efficiency gains; a healthy farm economy and balance sheets; projected shifts in interest rates; new and expanded opportunities for renewable fuels; and the strength of the U.S. cattle market and meat exports as a whole. Geopolitical issues could also impact global crop production and, in turn, bring some demand back to the U.S.

Cuts to Projected U.S. Crop Yields 

The survey was sent to ag economists the day after USDA released its most recent yield forecast in the July WASDE report. In what was called a rare move early in the growing season, USDA cut its corn yield forecast by 2.2% to 177.5 bu. per acre, down from 181.5 bu. per acre in the June report. The July Ag Economists’ Monthly Monitor is nearly 3 bu. per acre lower than USDA, with the group of ag economists projecting a yield of 174.9 bu. per acre. 

“For me, the interesting piece of this story is there's a lot of variability in the responses from those being surveyed, which highlights how varied the weather has been as you move around the country,” Brown says. “We had yield estimates slightly below 170 bu. per acre on the low end and some above 180 bu. per acre on the high end.”

yields

Brown says the soybean estimate also came in lower than both USDA's July WASDE report and the June Ag Economists' Monthly Monitor survey. USDA estimates soybean yield at 52 bu. per acre, and the average ag economists’ estimate is 50.6 bu. per acre, a 0.5 bu. cut from the June survey. 

“There was a little less variability from top to bottom on those yields, but when you look at prices, even with what was a lower corn yield, their estimate of 2023/2024 corn prices went from $4.99 in June to $4.80 in the July survey,” Brown says.

monthly monitor

What Economists are Watching the Next Six Months for Crop Prices

When asked what factors will impact crop prices in the next six months, economists said:

  • Final yields
  • Export demand and competition
  • Weather domestically and abroad
  • Geopolitical risk in the Black Sea and China, including developments that impact ag exports in Ukraine/Russia


“I think a couple of things stick out beyond the weather discussion, and one is export demand as well as global competition, such as what's going to happen with South America in terms of competing with U.S. corn and soybean markets.

“The economists certainly continue to talk about the geopolitical risk in the Black Sea and China, in particular, and what that means for our ability to export corn and soybeans as we look ahead,” Brown says. “Those are really the two big ones that came out of this survey.”

What Livestock Economists Are Watching the Next 6 Months for Livestock

Ag economists think the following factors will impact prices the next six months:

  • Changes in feed costs and impact of corn prices
  • Rising milk prices
  • Consumer meat demand and influences from macroeconomic factors, both domestically and abroad
  • Placements of cattle on feed


Brown says while the majority of economists are concerned about feed costs and the impact on livestock producers, the second-biggest concern revealed in the survey is demand. Economists pointed to both domestic and international demand as possible problem areas. 

“2021 and 2022 were extremely positive from a demand standpoint, and we seem to be backing up a little bit in 2023,” Brown says. 

Economists More Bullish on Cattle and Hogs 

The July Ag Economists' Monthly Monitor shows economists are more positive when asked about cattle and hog prices, but they have a more negative view on dairy, which they consider the biggest weight in the livestock sector.

“When you look at where pork prices have gone over the last month, it's gotten more positive. Now, I don't want to suggest we're back in black ink, but we have seen recovery in things like the pork cutout value,” Brown says. “The economists continue to worry about how the general economy will affect livestock going forward, but overall, it seems we're seeing a more positive view from the livestock perspective in this month's survey.”

livestock

Based on the July monitor, economists expect average milk prices to fall back to 2021 levels, but production costs will continue to be higher in 2023 versus 2021. 

“No. 1, the economists continue to worry about feed costs,” Brown says. “We continue to see fairly high feed costs affecting profitability. So even in the case of beef cattle, where we're talking record cattle prices, we're not talking record profitability because of the feed cost side.”

milk

Longer-Term Look at the Health of Agriculture 

Over the next 12 months, there are several things that could shape the health of the ag economy, according to the July survey: 

  • Crop prices and production costs, including inputs, rental rates, land values and supply chain disruptions
  • Subsequent impact on producer margins and the protein sector from rising interest rates and inflationary pressure
  • Weather considerations, including drought conditions in the short run and yield impacts in longer run
  • Geopolitical tensions and competitiveness of U.S. ag exports
  • Changes in consumer demand domestically and abroad, new markets for agricultural products, including biofuels


"One thing that came pretty strongly out of the survey is the continued increases in productivity in agriculture, which makes us more efficient," Brown says. "The farm economy is generally healthy, and when you look at balance sheets, they are still really, really strong in many cases. That's despite a lot of the issues we've talked about."

In the July survey, economists voiced more concerns about interest rates and the impact on operating loans. One economist also mentioned the industry might be underestimating the negative impact Proposition 12 could have on the entire livestock industry. 

The Turbulent Relationship Between the U.S. and China 

While none of the ag economists surveyed think the U.S. will enter into a trade war with China in 2023, economists continue to remain cautious about China, which could have a direct impact on U.S. agriculture.

When asked to list the top factors shaping trade relations between the U.S. and China, economists said: 

  • POTUS and political polarization in the U.S.
  • Non‐agricultural geopolitical tensions, including national security concerns, support of Taiwan and limits on technological production
  • Changes in China’s economic growth, including population and demographics
  • Russia's invasion of Ukraine and Russia’s relationship with China
  • Quality, price and availability of U.S. products compared with global competitors

Potential Events/Factors Not Getting Enough Attention Today 

The July survey also asked economists to outline any factors or events that currently aren't receiving enough attention but could shape agriculture over the next 12 months. One economist brought up impacts of geopolitical risks and fallout from the war in Ukraine, but also a potential war between the U.S. and China.

Other potential events that could cause a major shakeup in agriculture include:

  • Weather events, domestically and abroad, warranting a broader conversation on climate
  • Potential for a significant recession in China
  • Focus on renewable diesel obscuring importance of RFS in overall biofuel use
  • Workforce concerns for producing, processing and transporting agricultural products domestically and abroad
  • Declining EU pork production and commerce implications of Proposition 12
  • Strikes at shipping ports in Vancouver and potential for upward pressure on potash prices with reduced production capacity at Nutrien mines in Saskatchewan

Previous Ag Economists' Monthly Monitor Coverage

Most Ag Economists Think It's Unlikely the 2023 Farm Bill Will Be Written in 2023

High Production Costs Could Weigh on the Ag Economy Through 2024, New Survey of Economists Finds

 

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