What’s Ahead for 2018 . . .

Economic Tidbits 12.18.17

The USDA expects prices for corn, cattle, and soybeans to be off a bit in 2018.  Prices for wheat and hogs are expected to be higher.  Given the large production levels of all these commodities in recent years, prices, while soft, have been stable due to relatively strong demand, boosted in part by robust export markets.  The strong demand needs to continue, and, thus far, signs point to demand remaining strong.  For example, Jim Robb, director of the Livestock Market Information Center, recently said the average American is expected to eat 219 pounds of red meat and poultry this year, the highest level since 2007.

bigstock-field-5378624.jpgIn years past, crop producers could count on farm program payments to help offset the sting of lower prices.  This won’t happen in 2018 as payments will be substantially lower.  Dr. Brad Lubben, an extension economist at the University of Nebraska-Lincoln, estimates program payments received by Nebraska producers could be $400 million less next year.

Recent forecasts suggest Nebraska net farm income for 2018 will grow 5.9 percent.  Dr. Lubben expects net farm income to settle between $4.0 and $4.5 billion through 2020.  All this suggests the continued need for cost cutting, working with financial institutions, strategic marketing, and financial planning to help continue to navigate through the soft prices.  Several factors will influence the profitability of agriculture in the coming year:

U.S. Economy:  The U.S. economy has momentum.  The unemployment rate, 4.1 percent, is at the lowest rate since 2007, hourly earnings were up 2.5 percent in December compared to the prior year, personal income levels are growing, and the country’s GDP is expected to grow 2 percent in 2018.  A growing economy means growing demand for food, especially meats.  The positive outlook for the U.S. economy should be a plus for agriculture.

World Economy:  World economic growth is expected to be around 2.7 percent in 2018, helping boost export demand for U.S. agricultural products.  Pay special attention to the economies of Canada, Mexico, China, Japan and South Korea, typically Nebraska’s largest customers for agricultural goods.  The economies in each of these countries are expected to grow, with China expected to grow at around 6 percent.  These growing economies should provide opportunities to sell Nebraska agricultural products.

Trade Policy:  The biggest potential threat to agriculture remains the trade policy of the Trump Administration.  The U.S. is negotiating with Canada and Mexico to modify the North American Free Trade Agreement (NAFTA).  President Trump has threatened to withdraw from the agreement if he is not satisfied with the outcome of the negotiations.  President Trump has also said he wants to renegotiate the U.S. trade agreement with Korea (KORUS).  These trade agreements have been important contributors to growth in Nebraska’s exports.  Watch the actions of the Trump Administration on trade policy.

Value of the Dollar:  Changes in farm income tend to run counter to changes in the value of the dollar.  The value of the dollar today is roughly 10 percent less than it was in early 2017.  No doubt the drop contributed to the competitiveness of U.S. agricultural products and helped boost exports.  A growing economy and higher interest rates will tend to push the dollar higher.  Watch the dollar in 2018 to see if the decline in value continues.

Federal Taxes:  Congress passed, and President Trump signed, major tax reform legislation last month.  Early signs point to the reform legislation resulting more dollars in producers’ pockets through tax savings.  The extra dollars will help offset the cash flow squeeze.

 

Jay RempeJay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and a firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide an in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

Nebraska County Export Values . . .

 

Economic Tidbits logoInternational trade and foreign markets are critical to Nebraska agriculture.  To get a sense of which Nebraska counties are most reliant on international trade, the Nebraska Department of Agriculture has created a map showing export values by county for select commodities (see below).  Commodities included are beef and beef products, corn, dairy products, distillers grains, ethanol, pork and pork products, pulses, sorghum, soybeans and soybean products and wheat.  The map was created using 2015 Nebraska cash receipts data and attributing shares to counties based on county production data.  Platte County topped the state with export values of $245 million.  Custer, Holt, Boone and Cuming Counties fall in the next tier with export values between $125-$150 million.  Most counties in Nebraska generate at least $25 million in export values, which no doubt contributes significantly to their local economies.

The top counties stand to gain the most from increased access to foreign markets.  Free trade agreements with Mexico, Canada, Korea, Colombia and others, while benefitting all counties, have been particularly beneficial to these counties.  An analysis last year of the benefits of the TransPacific Partnership (TPP) by Nebraska Farm Bureau showed many of these same counties would have benefited from the $378 million in increased receipts Nebraska was projected to receive under the agreement.  The map clearly demonstrates it is in the interest of Nebraska agriculture to continue to press for more open international markets in agricultural products.
county exports

 

Jay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

Trade, TPA Vital to Agriculture Prosperity

Steve Nelson1It’s hard to open an agriculture publication these days without reading something related to agriculture trade; and for good reason. Strong agriculture exports (along with the boom in ethanol production) have been the key drivers of agriculture prosperity over of the last decade. Continued prosperity in agriculture over the next 10 years will have much to do with how well we’re able to tap into a growing world market that we know will have more mouths to feed.

While some skeptics still question the value of trade to agriculture, it’s impossible to escape the numbers.

For perspective, total U.S. agriculture exports increased 30 percent over the last five years. Here in Nebraska, we shared in that trend. From 2009-2013 the value of Nebraska exports increased 36 percent, led by a 116 percent increase in beef exports, and major increases in exports of both soybeans (29 percent) and soybean meal (53 percent).

Most of the recent export gains have been strongest in the NAFTA countries and non-Japan Asia markets. China is a now a major player in world agriculture trade. From 2004 to 2014 U.S. exports to China increased 330 percent. During that time U.S. agriculture exports to NAFTA partners Canada and Mexico were also up 121 and 130 percent, respectively. These trade opportunities have not only helped boost farm prices and income, but also helped support about 50,000 Nebraska jobs both on the farm and in related industries such as food processing, transportation and manufacturing.

The importance of agriculture trade to farm income is expected to continue into the next decade as global demand for overall agricultural products is expected to grow in the years ahead. USDA projects total U.S. agriculture exports will increase another 23 percent between 2014 and 2024. One of the largest projected growth areas for U.S. agriculture exports during that period lies in markets Nebraska is well positioned to fulfill, namely demand for livestock, poultry and dairy products.

While numerous factors will influence Nebraska’s agriculture export potential over the next decade, the U.S. ability to tap into and be a part of future trade agreements is one of the largest. That’s why Farm Bureau has been such a strong proponent of Congress granting the President Trade Promotion Authority (TPA). Regardless of how this Administration has handled other issues related to agriculture, there is little to debate when it comes to trade. It’s vital to the future of agriculture prosperity. TPA has been given to every U.S. President since 1974 and without it, the Administration is lacking what it needs to show potential trading partners that Congress is serious about moving ahead in trade negotiations.

Right now the U.S. is negotiating new trade agreements with some of the world’s largest and fastest-growing economies, including Europe and 11 Asia-Pacific nations, through the Trans-Atlantic Trade and Investment Partnership (T-TIP) and the Trans Pacific Partnership (TPP). It’s critical Congress grant TPA authority to shore up the U.S. position in these and other trade talks. Trade deals are going to be made, and will be made. Without TPA, the U.S. and Nebraska farmers and ranchers could be the ones left on the outside, looking in.

Until next month,

Steve Nelson, President, Nebraska Farm Bureau Federation

Farm Bureau Participation in Trade Mission to South Korea

With the recently passed Free Trade Agreement with Korea, the timing of an April trade visit to South Korea was ideal. Nebraska was the first state to travel to Korea since the implementation of the Free Trade Agreement.

Steve Nelson, Nebraska Farm Bureau President, explains here how the passage of the FTA has affected tariffs on our U.S. commodities in Korea.

We also had the opportunity to ask Steve what his overall assessment of Korean acceptance was for U.S. products.

To round out our interview with Steve, we wanted to know what the U.S. is doing to overcome some of the obstacles to consumer acceptance in Korea and how he views his responsibility as a farmer to not only feed his neighbors but the world.

Learn more about ag families in Nebraska by visiting www.nefb.org. And while there, be sure to connect with us on Facebook, Twitter and YouTube.