Last Wednesday, the Pinney Purdue Agriculture Center in Wanatah hosted the Pinney Purdue Field Day event focusing on crop management for farmers and business men and women.
Michael Langemeier, Purdue Extension agricultural economist, started the day by sharing his crop net return prospects for the remainder of 2017 and going into 2018.
He started out asking those in attendance,"Is the glass half empty or half full today in production agriculture?" He shared that he is one of those people who would say that the glass is "half full."
With 2017 margins and projected 2018 margins being quite a bit better than what they were in 2014, 2015 and 2016, Langemeier said that he feels there is room for optimism, particularly long-term, when looking at production agriculture.
"The 49.6 percent decline of the U.S. net farm income since 2014, from $123.7 to $62.3 billion, is why several people see the agriculture industry as being a glass that is half empty," said Langemeier.
He also shared that the value of machinery and vehicles has declined by 12.3 percent since 2013. This decline is a result of farmers not replacing machinery since 2013 and 2014 when the drop in net farm income dropped significantly. This is the main component that has changed in the U.S. balance sheet in regards to production agriculture.
In relation to land values, Langemeier said that a minor drop in land value outside of the Corn Belt and Great Plains have not adjusted that much. However, in the Corn Belt and Great Plains areas, land values have declined by 25 to 30 percent since 2014. Indiana's land value has decreased by 12 to 13 percent.
In terms of cash flow, Langemeier shared that the agriculture industry is currently in the midst of a liquidity crisis. Cash flows are tight because of the lower net farm income, but solvency is not nearly as problematic.
"Interest rates are very positive right now for production agriculture. Rates are essentially the lowest they have been since the 1950s. Even though the Federal Reserve is talking about increasing interest rates, those increases will be small somewhere around a quarter of a percent or half of a percent and the increase will be over a period of time," said Langemeier.
Expected Prices
The United States' corn production represents 35 percent of world production, and 13 percent of U.S. corn is exported. Corn for grain production in 2017 is 14.2 billion bushels, which is ranked second only to last year's 15.1 billion bushels.
Corn yield in 2017 is expected to be 169.5, slightly above trend yield. Indiana corn yield is expected to be 173.0, the same as last year's. Trend yield for U.S. is 168 bushels per acre.
In 2017, 14.2 billion bushels of corn are expected to be produced.
"The demand for corn has been strong. Ethanol demand has been fairly strong too. What really has helped corn price not drop lower than it has is that the export demand has remained stronger than expected. Record animal numbers has also helped corn prices," he said.
Langemeier shared that U.S. Department of Agriculture's corn price forecasts for 2017-2018 is $2.90 to $3.70, with a mid-point of $3.30. If yields come out to be smaller than anticipated, farmers will see corn prices around the $3.60 mark.
Long-term price forecasts are at $3.75 to $4. Langemeier shared that that is really good news because breakevens for corn on high productivity ground is coming down, which will help farmers get their breakeven closer to the $4 average mark.
"$4.50 corn isn't going to happen. Even if the August yield is reduced by two to three bushels, corn prices may see a slight uptick, but it won't be anything large," said Langemeier.
Corn usage in the U.S. is broken down into three categories, ethanol at 48 percent, feed at 48 percent and exports at 13 percent.
Langemeier also shared that ears per acre is another factor that the USDA is studying. This is important because it shows how good the crop is and helps with estimates. The August 2017 ears per acre is the fourth largest in history, starting in the early 2000s. The weight of the ears is estimated to be pretty strong, which is surprising for many.
U.S. soybean production represents 34 percent of the world's production with 52 percent of U.S. soybeans being exported.
Soybean production in 2017 is forecasted at 4.38 billion bushels, which is a record production. Soybean yield in 2017 is expected to be 49.3 bushels per acre, with Indiana's soybean yield expected to be 53.0, 1.5 bushels below last year's record yield.
Langemeier pointed out that when comparing U.S. soybean exports to the soybean exports of Brazil and Argentina, there is a difference. Argentina exports primarily soybean meal and soybean oil because of their export tariffs on soybeans. They don't have export tariffs, so they process the soybean into oil, meal, etc. before they export it whereas the U.S. exports the actual soybeans.
Average prices for 2016 and 2017 soybeans are $9.50, with Indiana's prices being a bit higher. USDA soybean prices forecasted for 2017-18 are at $8.45 to $10.50, longer-term is $9.50 to $10.
"It wouldn't take much of a reduction in soybean estimates to get to the $10 figure. Demand has really helped with soybean prices in addition to exports of soybeans to China. China is extremely important for U.S. soybean prices," said Langemeier.
Between both corn and soybeans for production in the U.S., Langemeier said that as long as exports stay where they need to be, we should see positives for production agriculture.