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Presidential Election Has Impact on Farmer Outlook

by Darrell Boone

Published: Friday, February 19, 2021

Last Tuesday, Jim Mintert, Purdue University director for the Center for Commercial Agriculture, gave attendees at the Adult Farmer Class in Wabash a glimpse into his crystal ball for the agricultural economy. In a wide-ranging, mixed-bag virtual outlook, Mintert saw reasons for both optimism and concern.

He said the most recent Purdue-CME Ag Economy Barometer contained some of each. The nationwide survey showed that farmers felt pretty optimistic about current conditions, while less so with future expectations, with the recent presidential election being a significant factor.

"Our survey showed that farmers are less optimistic about the future than they were in October," he said. "Factors included the expectation of more environmental regulations, and higher income and estate taxes within the next five years. All of these drivers lead to a less optimistic view of the future."

Earlier that day, USDA released a number of reports, including the WASDE (World Agricultural Supply and Demand Estimates) report. Mintert said that traders were somewhat disappointed in the latest export numbers, with the futures market falling off somewhat as a response. However, he also said that the corn market had still been robust, with the current marketing year average moving up a dime from the January report to $4.30 per bushel for February.

Mintert said the current strength in the corn market was a result of a number of factors, one of which was the national corn yield falling short of USDA projections of 177 bushels per acre, to 172 bushels. He said that while 172 was not really a short crop by historic standards, overall good exports had been the driver that had helped to reduce ending stocks from USDA's projection of 3.3 billion bushels in June, to 1.5 billion in February. He attributed much of that dramatic improvement in exports to China.

"Exports from the current marketing year versus the previous one are up 80 percent, with 70 percent of that coming from China," he said. "Clearly they're trying to rebuild their hog herd as they try to recover from African swine fever, and to improve people's diets as they hope to do is requiring more corn and soybeans."

Mintert said wild cards in future corn prices include what happens with ethanol production, with the current outlook "not being rosy," and the size of future corn purchases by China. However, he added that at current prices, end users hadn't backed off corn purchases, and that "the price may need to go higher for rationing of demand to occur."

With soybeans, Mintert said the current high prices were also supported by the brisk level of exports, particularly to China. He said total soybean export shipments were up 77 percent compared to last year, with virtually all of that increase coming from Chinese purchases.

As a result of exports running ahead of normal levels, projections for ending stocks have drifted downward to 120 million bushels, which he described as "pretty tight supply situation, basically pipeline levels, going into the rest of this marketing year." Stocks to usage were pegged at 2.6 percent, which equaled that metric in 2013, when the marketing year average hit $13 per bushel. However, USDA left the marketing year average for the 20-21 marketing year at $11.15 per bushel.

Although some of the fundamentals underlying the corn and soybean markets may differ, Mintert stressed that even though both crops had "taken something of a hit" following the release of the USDA reports, current prices, for both old crop and the 2021 crop, were excellent. He said the futures markets for both crops are "inverted," with the nearby contracts being higher than the deferred contracts. He encouraged producers to take advantage of both situations.

"Today's old crop prices are excellent, far beyond what any of us would have imagined a few months ago," he said. "Could they go higher? Yes, but they could also go the other direction. To be making some sales now would probably be a good move. And while next year's prices don't look that good in comparison to what you can get today, they still offer producers an opportunity to lock in a profit at a level that exceeds all costs. It's not often you can do that, and I would encourage you to sell at least some of your '21 crop as a risk management strategy."

Regarding the upcoming USDA March 15 deadline to sign up for either ARC (Agriculture Risk Coverage) or PLC (Price Loss Coverage), Mintert told the audience that with today's futures prices, it is very unlikely they will be able to collect a payment under either program. But he said it was still important to sign up, and said Purdue's analysis showed that PLC appeared to be the program of choice for corn and wheat, while ARC was probably the better option for soybeans.

Given current commodity prices and a favorable price outlook for the '21 crops, Mintert said farm management and real estate companies he'd talked with indicated that there has been an uptick in land values at recent sales. He added that cash rents usually lag in relation to land values, but that producers could probably expect some upward pressure in cash rents if the current favorable conditions continue.

Mintert said with the coming of the Biden administration, there was sure to be an increased emphasis on combatting climate change. With that, there has also been an greater interest in the possibility of farmers finding a new revenue stream from earning money from the sale of carbon credits. These credits would come from incorporating practices like no-till and cover crops that would take carbon dioxide from the atmosphere and sequester it as carbon in the soil.

He said that in a recent Ag Barometer survey, 30 percent of respondents said they would be interested in learning more about how they could receive such payments, and that 22 percent of those 30 percent indicated that they had had some discussions with potential credit buyers about that possibility. Questions from attendees and subsequent discussion indicated that there was, in fact, local interest in such possibilities.

Mintert said one of the rubs with implementing such a program was that, as currently envisioned, payments would only apply to those who made the switch from conventional to conservation practices. Those conservation-minded farmers who had previously been doing such practices because they were trying to practice good stewardship would not be eligible.

"To the latter group, they understandably see this as pretty unfair," he said. "But the reality is that the companies who would be buying the carbon credits need to demonstrate that they're making a difference, making the environment better, and that would come from producers who are currently making the switch from what they've been doing."

"With the Biden administration, I'm sure we're going to see some activity in this arena in the next three to five years, but there are a lot of details to be worked out, and it's a wild card what it's finally going to look like," he said. "But I wouldn't worry about 'missing out on opportunities,' because I believe it's going to take time for things to come together. Stay tuned."

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