By Brent Gloy and David Widmar
While calendars now say 2018, this week’s post looks back at our most popular and favorite posts from 2017. In our biased opinions, the best way to plan for the future is to carefully review and reflect on the key lessons, trends, and observations from the past. With that in mind, here is a look back at 2017’s key posts.
Last year we posed 16 questions production agriculture would face in 2017. It’s always interesting to look back over these lists (here are the 2017 and 2016 question lists). If you really want to dig into history here are links to the popular year in review articles for 2017, 2016, and 2015. Our conclusion for 2017’s questions seems like a fitting reminder for 2018:
“In our opinion, the macro-economy and government policy are set up to play a much larger role in the agricultural economy in 2017 (and beyond). Many unknowns exist. While many are optimistic about the future, it’s important to note that many of the unknowns and moving pieces can play out in unpredictable ways. More directly, given the macro-economy and government policy unknowns it is extremely difficult to understand how the impacts might affect agriculture. Furthermore, it’s extremely difficult to conclude – at this point- that these to-be-determined factors will be unequivocally positive for the U.S agriculture.” Brent Gloy & David Widmar, January 2017
What are the key questions for agriculture in 2018? Stay tuned as we will cover those issues in next week’s post.
Believing macro-economic and policy issues might be poised to play a larger role in 2017 (see above), we took a look at key policy issues for the industry to watch in 2017.
Remember the Boarder Adjusted Tax (or BAT)? While that proposal didn’t make the final cut for tax reform in 2017, it posed a big potential challenge for agriculture. (Is the BAT gone for good? For what it’s worth, we believe the probability of seeing this proposal re-surface is non-zero, especially if Congress wants to tackle deficit and entitlements in 2018).
The farm economy slow-down continued in 2017. Net farm income turned slightly higher but farm debt increased and key financial ratios signaled a more difficult farm financial situation. While these national measures are important, it’s also key to keep in mind the farm boom and recent slow down have impacted different parts of the country differently.
While the national average for farmland was unchanged in 2017 (and only 1% off the 2015-peak), farmland values in the Plains and Midwest have adjusted the most. Values have been hardest hit in Kansas (-13%), Nebraska (-12%), South Dakota (-11%), and Iowa (-7.4%).
Broadly speaking, farm real estate values are historically high relative to sector level net farm income. What are the potential implications?
“This does not mean that farm real estate is set to fall, incomes could increase, capitalization rates could stay low, or various combinations could occur. However, it does seem like such ratios indicate that a warning flag is flying at the sector level.” Brent Gloy, September 2017
Fertilizer prices were again an important topic in 2017. Prices turned higher in the spring but remained lower than 2016 levels. More recently, we noted that nitrogen prices turned lower this Fall, especially for anhydrous ammonia.
An economic advantage in soybean budgets incentivized U.S. producers to plant a record number of soybean acres in 2017. This advantage, however, wasn’t consistent across all university crop budgets. In 2017, producers in Iowa might have found better budget returns with corn. Still, soybeans notched a big victory, equaling corn acres in 2017.
The U.S. isn’t the only country planting more corn in recent years. Global corn production trends show corn production and acres have been up for many countries. We also considered corn consumption trends, and production trends for soybeans, wheat, and cattle.
Particularly interesting was that most of the production gains in corn have come from higher yields (56% of increased global corn production) while gains in soybeans have been mostly from additional acres (71% of global production increases). Meanwhile, wheat production has increased even as global wheat acres have declined.
This post wasn’t overly popular, but we believe it’s one of the important ones. In this post, we evaluated county-level yield data to compare the recent 3-year average county yields for corn and soybeans (2014 – 2016) to the county’s long-run trend yields (1960 to 2016). Many – but not all- parts of the country have experienced a run of extremely good yields. For example, many counties have 3-year average yields that are more than 10% above the long-run trend-adjusted yields. This has helped soften the blow of low commodity prices.
The implications of recent yields being considerably above long-run trend-adjusted yields may be significant. Some – producers, ag retailers, ag lenders, farmland investors, etc. – may confuse short-run yield luck with superior management skills. This yield luck can also impact what producers bid for cash rent or farmland. Consider the example of a county with a long-run, trend-adjusted yields of 180 bushels per acre, but recent yields averaging 10% above trend. The recent averages of 198 bushel per acre might be difficult to un-adjust to as yields, in the long-run, will inevitably revert to mean.
We have a lot of exciting ideas and plans in store for 2018, and we invite you to sign-up below to receive our weekly updates. All the best!
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