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All News >> Momentum

View the Winter 2019 Momentum Issue

Guessing Game

December 15, 2019

Written By Adam Buckallew

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Commodity Outlook for 2019 is Clouded by Missing Government Data, Trade Concerns

As the partial government shutdown stretches to historic length, farmers, ranchers, agricultural economists and agribusinesses remain cut off from key reports from the U.S. Department of Agriculture.

The USDA was scheduled to release a collection of crop reports on Jan. 11, including data detailing the size of the 2018 harvests of corn, soybean, wheat and other crops, but the reports have been delayed indefinitely until the shutdown has ended. As of late January, the agency remained shuttered as President Donald Trump battled with congressional leaders over funding for his proposed wall along the U.S.-Mexico border.

“Without that data, it’s hard to know how to make the best decisions, and we’re going to have a lot of uncertainty,” says Scott Brown, an agricultural economist with the University of Missouri.

USDA hasn’t issued any new information since Dec. 22. In the meantime, anyone with access to private sources of similar data may have a leg up on the competition. The primary advantage to reviewing data, such as production and inventory reports, is that it allows producers to better gauge appropriate pricing levels for crops and livestock and anticipate how many acres may be devoted to specific crops in the year ahead.

“When we don’t know what’s going on in the market, and we don’t have good information, prices tend to be less reliable and more volatile,” says John Anderson, an economist with the College of the Ozarks.

According to a recent study published by a collection of U.S. ag economists, the impact of USDA’s missing January reports on crop prices is significant compared to other months and has been increasing over time.

“We will be missing some of the most important information of the year from the USDA according to our research,” tweeted Scott Irwin at the University of Illinois and one of the authors of the report.

“There is damage to the price discovery process in our grain and livestock markets due to the absence of the reports,” Irwin recently said in an interview with DTN. “The question is, is it little or is it big? And the answer to that question really depends on how long the information is delayed.”

As the uncertainty caused by the absence of vital agricultural production data grows, trade issues continue to be a primary concern for commodities in 2019. The United States and China have temporarily called a truce to their trade war, but the cease-fire has an early March deadline that is quickly approaching. Unless the high-stakes trade talks wrap successfully, new tariffs will be imposed between the world’s two largest economies.

Pat Westhoff, director of the Food and Agricultural Policy Research Institute, says Chinese tariffs remain a top issue affecting soybean prices. While China has resumed purchasing U.S. soybeans, the volume of sales remains unclear, and USDA weekly export data is unavailable due to the shutdown.

If U.S. trade representatives can broker a deal with Beijing, Westhoff says it could be positive for soybean farmers so long as China agrees to purchase large quantities over the next two years.

“There’s good reason for the market to be optimistic about that, but I’m afraid the downside risk is also very real right now,” he says.

Westhoff says a large carryover of soybean seed in the United States is expected, and he cautions “prices could move a fair amount south of where they are now.”

From a livestock perspective, Anderson says while prices aren’t likely where producers would like to see them, they are still in good shape considering the supply pressure that has continued to grow the past four years.

“If demand remains stable, I think we are in pretty good shape to absorb the supply that will be coming on in 2019,” he says. “I think the risk is that we see some sort of economic disruption that undermines demand. An economic slowdown in the United States or an economic slowdown globally that would impinge on consumer demand (could create) real downside problems.”

Westhoff says resolving the trade tariffs in place against Canada and Mexico will play a pivotal role in the 2019 livestock market. While the Trump Administration has renegotiated the North American Free Trade Agreement (NAFTA) and finalized a new United States-Mexico-Canada Agreement (USMCA), there are still questions as to how the situation will shake out.

“Trump could pull out of NAFTA and Congress could potentially not approve the (USMCA) deal,” Westhoff says. “So there’s potential we could lose our trade deals with Canada and Mexico completely.”

Overall, Westhoff expects farm income to be down in 2019 in what he says will be “a much tighter year.”

Anderson concurs and says he wouldn’t be surprised if farm income dipped even lower than it did in 2016.

“It’s a frustrating situation for producers,” he says. “We seem to always tell (them) the same thing: do more, cut costs, be more efficient and continually chase that commodity price. That’s a really difficult way to dramatically improve your income situation. I think we should encourage and support ways to move away from that strict commodity production model and look at value-added opportunities. We need multiple pathways for producers to be successful beyond hyper efficiency.”

Brown points to five key points he will be watching in the year ahead that could move the markets.

“The domestic economy, USMCA agreement, tariffs with other countries, African swine fever in China and weather,” Brown says. “It’s all about risk management. There’s lots of sideways action occurring right now and farmers need to protect themselves against lower prices. These are turbulent times.”

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