This week has been a downer for the ag sector, media reports indicate. For example, Bloomberg says that U.S. farmers are being stung by both trade policies that restrict their sales and by expectations of booming production that are hurting prices.
The latest economic insult for the sector has come in the form of what Bloomberg calls “controversial data from the U.S. government” that snuffed the recent corn price rally.
On Monday, USDA reported that farmers planted more corn acreage than analysts estimated and that it also anticipates unexpectedly good yields, sparking the biggest rout in some price futures since 2013. That is providing an additional blow to producers who have been holding back supplies, hoping that the “rally that started in May due to delayed sowing would extend through the fall.”
This most recent price decline for U.S. corn is large, a potential loss of almost $3.5 billion, according to the American Farm Bureau and is another setback after prices fell following USDA’s previous acreage report, which also was criticized for containing “outdated data.”
These developments are compounding the pain from the trade war between Washington and Beijing, which has significantly reduced purchases from the world’s largest soybean buyer, Bloomberg says.
Policy uncertainty is also increasing pressure on the farm economy as a new U.S. deal with Mexico and Canada is yet to be passed. What’s more, the government is allowing 31 oil refineries to go without blending ethanol into fossil fuels, thus reducing the demand for corn, Bloomberg says.
“This is a huge disappointment for farmers that have already been struggling with a lot of uncertainty with this corn crop, trade wars and what have you,” said Tanner Ehmke, manager of the research team at CoBank, a $138 billion lender to the agriculture industry. “A lot of people were banking on the opportunity to sell at much higher prices. This report now really brings that into question,” he said.
Crashing corn prices are an additional stress for growers facing large debts – which USDA estimates will rise 3.9% this year to $427 billion. Last year, the farm debt-to-income ratio was at the highest level since 1984, Bloomberg said.
Some growers also questioned the report’s accuracy on the basis of a discrepancy between the figures published by the USDA’s National Agricultural Statistics Service and those by the Farm Service Agency.
“We need to disregard this report, we won’t know actual acreage until this winter, I guess,” said Monte Peterson, a farmer in Valley City, North Dakota. “Makes me wonder, if our system isn’t a little broken. Harvested acreage will be a surprise at some point.”
At the same time, a number of market veterans say they agree with the USDA acreage forecast. Scott Irwin, a University of Illinois agricultural economist, said President Trump’s trade aid plan may have encouraged farmers to sow more corn since the agency had initially announced payouts would be tied to acreage planted.
Dan Basse, president of AgResource, said the USDA report showed growers took advantage of the rally earlier this year and planted more than the market expected during a window in the first 10 days of June.
Still, lower prices are seen adding to grower stress at a time Farm Aid’s hotline has seen increasingly numbers reaching out on everything from financial counseling to crisis assistance.
In addition, concerns about a further squeeze to farmers’ financial health sent shares of tractor makers tumbling Monday, with AGCO Corp. down by the most in over a year and Deere & Co. declining by as much as 5.2%, Bloomberg said.
Lower prices could also push Trump to announce further aid to farmers as he seeks re-election next year, Bloomberg noted. He has already announced $28 billion worth of financial help for growers facing lower exports due to trade wars.
So we will see. USDA needs to take the charges of “data discrepancies” seriously and explain those that are being criticized. Most likely, the sector is continuing to show that it is highly sensitive to real or perceived economic incentives and that many highly efficient producers expect decent returns even at relatively low prices. This has been an especially challenging season for producers with a critical crop development period just ahead that producers certainly will watch closely as conditions evolve, Washington Insider believes.
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