Ag Waits For New Normal

Lower crop prices, higher meat prices and pressure on management will challenge farmers over the next five years, says Terry Barr with CoBank.

Published on: Nov 8, 2013

The balance sheet of agriculture is strong, compared to the 1980s, yet the industry faces some challenges and change over the next five years, said Terry Barr, senior director of the Knowledge Exchange Division of CoBank.

Barr gave the welcome address at Minnesota Agri-Growth's annual meeting in Minneapolis.

"The first thing to remember is that we've been through a dramatic 10-year period," he said. He categorized the period of 2004-2008 as the "rising middle class" years where we saw rapid global growth fueled by the growing middle class in China and emerging markets. Then the "economic turmoil" period hit from 2009-2013 with its global fiscal deficits and recession.

Ag Waits For New Normal
Ag Waits For New Normal

Yet even in this latter challenging period, Barr noted that China and other emerging markets continued to grow. There were shortfalls in grain and that resulted in tight grain stocks.

"In the last five years, you wanted to be in the ag market," he said. "It was strong."

However, there are challenges ahead. Barr sees 2014-2018 as the period of "policy realignment" with rising fiscal austerity and major policy shifts. Interest rates will rise. Grain will transition from tight supplies to building stocks.

Ag will be looking for a new normal in terms of prices, he said.

Within this environment, Barr noted:

- Lower feed costs for livestock as grain stocks rebuild. Even with a good 2013 corn crop here and in South America, grain supplies won't be enough to build inventory to surplus levels, however. On the other hand, soybean inventories are being significantly rebuilt, especially if South America has a record-setting crop. Still, two years of large harvests are needed to rebuild stocks.

- More global competition. Russia and other countries have filled the coarse grain hole, taking market share from U.S. corn; South America continues to be a major producer of soybeans.

- Expect to see beef production decline for a year or so, due to impacts of drought and blizzards. "It will be great for cow-calf people, not so for feedlot," he said. U.S. meat supplies will be tight.

- Strong exports for pork and broilers. Most dramatic is the increasing global demand for U.S. pork: 22% of it heads for other countries.

- Dairy is more export-dependent with 16% of U.S. dairy production heading into the global market. Those global prices impact U.S. dairy prices.

Overall, though, Barr remains optimistic.

"The ag balance sheet is strong and that will cushion any transition," he said. Yet he cautioned that farmers will face more pressure on management.

"A lot of risk we may not have paid attention to in the past," Barr said. "Now is the time to think about it, with [low] interest rates and liquidity."