Growing world populations accompanied by rising demand for food translate into "rosy" long-term prospects for U.S. farmers, ag economist Dan Basse told a packed ballroom Tuesday at the Hyatt Regency in Chicago, where the American Seed Trade Association is holding its annual Seed Expo.
But to get to the good times, growers will have to make it through the current downturn in the farm economy, which has not been helped by the current trade wars the United States is engaged in. Basse predicted U.S. net farm income would be depressed into 2027.
The head of AgResource Company in Chicago, Basse said he was not all that impressed by the “handshake deal” recently reached between President Donald Trump and Chinese President Xi Jinping, which has temporarily eased tensions between the two countries.
The details of the agreement, in which Trump agreed to forgo a planned tariff increase from 10 to 25 percent on Chinese goods and China agreed to buy an unspecified amount of U.S. farm goods, “are very foggy as we see them today,” Basse said.
After the talk, he told Agri-Pulse the trade war has not had the effect of destroying future prospects of ag trading with China, but recovering that market won’t be easy.
“I’m not saying we lost our market in China forever, but it will take some work to get it back,” he said. “At the same time, our competitors in South America have been working to secure larger shares of it, so that will happen going forward.” The Chinese, for their part, are moving to “a leaner ration” containing more corn and wheat and less soybeans, he said.
“We think it’ll be two or three years before this whole trade war has really reverberated through the U.S. farm community, and we can look at a future then that is more reliable and bright compared to where we are today,” Basse said. “The farmer just needs to be prepared to be around for the good times, which will come but are still a couple years off."
In his talk, Basse said U.S. growers are not in as bad shape as they were during the 1980s, but are in an “operational crisis of credit.” Borrowing costs are approaching the record of 1980, when they topped $400 billion nationwide, and farm lending rates, between 5.25-6 percent, are at their highest level since 2010, Basse said.
“It’s a slow burn,” he said. “Yes, there are more farmers each year facing the prospect of bankers not lending them money, but in a general sense it’s not a crisis. It’s just this consolidation that continues to happen in agriculture and other industries.”
After the talk, he said he thought 3-4 percent of farmers would go bankrupt over the winter and into 2019. “It’s still a very high number; usually that number is in the range of 1 to 1 and a half percent,” he said, partially attributing the failure rate to higher equipment costs.
Basse said global politics will continue to wreak havoc in financial markets. “We still see this economic and political order becoming disorder,” he said, referring to “uncertain leaders” such as Russia’s Vladimir Putin, Turkey’s Tayyip Erdogan, Argentina’s Mauricio Macri and Brazil’s newly elected Jair Bolsonaro.
Basse also sounded the alarm about climate change, saying “the data’s too compelling now – we actually have something going on with climate.” Weather and politics, he said, would be the big factors in the ag markets in 2019.
As for immediate pricing, Basse said he expected corn prices to remain in the $3.50-$4.05/bushel range in 2019 absent a major weather event. At $9/bushel, he said soybeans are overvalued without the Chinese market and urged growers to sell if they could get that price.
Despite predicting depressed farm income through 2027, Basse said growing demand for corn and wheat worldwide should lift grain values.
“I’d like to believe we’ll resolve the trade war but I can’t forecast that,” Basse said.
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