This was a big year with shifting winds for U.S. agriculture—changing economics for both crop and livestock producers, but in different directions, a new farm bill and policy shifts, both here and abroad, and an acceleration in the application of big data.
Brent Gloy, a well-known ag economist formerly with Purdue University who became a full-time Nebraska farmer this year, provides his list of 20 key events impacting agriculture in 2014.
Farmers Begin the Year Flush. Producers in early 2014 were still riding a wave of very high profits, with the financial condition of the U.S. farm sector the strongest in decades. Farmland values stood values stood at all-time highs in almost every region.
Lower Incomes in 2014. USDA called for a 25% decline in net farm income. Reports began suggesting that the great farm boom was over and times were rapidly changing. While some talked of a bubble that might burst and the income hit was notable, others noted that the farm sector remained in relatively good condition.
Farmland Values and Cash Rents Stop Rising. This year may be recalled as the year that land values and cash rents stopped shooting higher. While USDA and some other surveys reported that prices were going up, other surveys observed that prices were flat to lower. The confusion was due to the timing of the surveys and values/rents being measured. Overall, it appears values did peak and began to head lower. Some are saying a major correction could be in the works.
EPA Delays RFS Decision. Ethanol demand mandated by the renewable fuel standard (RFS) has been a big driver of the great agricultural boom. The RFS has come under repeated scrutiny since its implementation, but the EPA’s late 2013 decision to reconsider aspects of the RFS was big news in 2014. After initially proposing to reduce the amount of ethanol blended into gasoline, the EPA postponed its decision until 2015. Many analysts are suggesting that big changes in the RFS are now unlikely. Keep watch in 2015 as big changes would be a surprise to the market.
Ethanol Profits Climb. With lower corn prices and strong domestic and export demand, 2014 was a great year for ethanol producers, but the crash in oil prices raises questions for 2015.
Ideal Weather, Great Crops. Near perfect growing conditions led to speculation that the U.S. was on the verge of a record corn crop. While the actual totals were a bit lower than mid-season estimates, the crop was substantial. Stockpiles of most row crops are now comfortable and indeed large, but the U.S. is not quite to the point of being ridiculously oversupplied.
California Drought. As California felt the grip of a powerful drought, the impacts have been staggering, with some estimates pointing to losses in excess of $2 billion. Even today, 99% of California remains in drought and 55% in the most severe category.
The El Nino That Never Came. In early June, forecasts called for an El Nino to occur, with 70% estimates for summer arrival, 80% by fall. But El Nino never came. Today, the forecast places odds at 65%.
Crop Price Free Fall. From June 30 to October 1, the December 2014 corn contract lost $1.23 per bushel, pushing prices below the cost of production for most farmers.
Transport and Basis Issues Hammer Northern Plains and Corn Belt. No question but that the development of shale oil resources in the Northern Plains contributed to transportation challenges, but the amount of grain production also has grown substantially in recent years. Corn plantings in this region will be under pressure in 2015.
Concern Over Margin Squeeze. The cost/price squeeze won’t likely be alleviated until fixed costs, such as land prices, cash rents, equipment costs, labor costs, family living expenses adjust, prices rebound, or some combination of these.
Early 2015 Budgets Show Big Losses. In late fall, universities started putting out 2015 crop budgets and the numbers weren’t pretty. Many showed budgeted losses of $100 per acre
Surprise Rally Buoys Spirits. A big surprise caught many off-guard while the biggest corn crop in history was being harvested: Corn markets rallied 54 cents per bushel from October to December. Keep a close eye on the crop insurance price discovery period for clues about next year.
Livestock Profits Surge. While row crop incomes were under pressure in 2014, the livestock sector experienced outstanding levels of profitability, and the outlook for 2015 is bright.
Porcine Epidemic Diarrhea Virus. PEDv rocked the hog and pork markets. PEDv left the industry with fewer hogs to market, thus driving up prices and producers worrying about their herd health and financial losses. A second wave of cases is likely this winter.
Machinery Dealers Start to Feel the Pain. As commodity prices fell, many believed equipment would be one of the first purchases farmers would cut back on. Recent data suggests that combines have experienced the softest sales, with November sales off more than 50% from a year ago.
Ag Manufacturers Cut Jobs. John Deere led the scale-back in August, announcing a cut in its workforce, mainly from the agricultural equipment division. Syngenta announced in late November that it was reducing its global workforce as well.
Farm Bill Passes, and Farmers Are Still Scratching their Heads. The new farm bill offers more complicated choices for farmers than any bill in recent memory. ARC-Individual, ARC-County and PLC will be the subject of many discussions and meetings this winter. Even prices used to determine payments under the various programs, or the Market Year Average prices aren’t as simple as they initially seem.
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