CoBank Director Says Ag Industry Needs to Plan Ahead — For 2018
December 5, 2016
As farmers finish up the 2016 season most are now planning for 2017. Terry Barr’s advice to them and the ag industry at large is to look beyond next year and lay the financial groundwork for 2018. He says that’s the year agriculture will begin to settle into what he describes as the “new normal.”
“Farmers will finally believe their price fluctuations are going to be between $3 and $4 and not between $3 and $8,” says Barr, agricultural economist and CoBank senior director, knowledge exchange division.
The likelihood that commodity prices will register in those lower dollar amounts will be made increasingly likely, he says, if U.S. farmers produce a normal, or average, corn crop next year as excess inventory already exists.
“We’ll get to a pressure point where even a short crop won’t give us much price opportunity, and then people will say ‘I have to adjust my cash rents and land values accordingly,’” he explains.
In the meantime, Barr says don’t be surprised in 2017 if land owners are still reluctant to lower rents, “because they don’t feel they did as well as they should have when prices were high.” Likewise, famers who still have cash will think they can keep picking up rental ground.
For those reasons, “I think 2018 will be the more challenging year,” he told a standing-room only crowd at the Agricultural Retailers Association annual meeting and expo this week in Orlando.
Catalysts for change.
Stronger export markets would be a factor that Barr says could change his outlook for 2018. “If world demand would just grow we’d be ok, but we need more populations moving into the middle class. That would have to include China and opening up India.”
Interest rates could also possibly factor into the equation, Barr says. He expects to see an interest rate increase sometime this month but anticipates it will be modest. Along with that, he believes there will be an additional rate bump in 2017, depending on inflation. “I think if we get 50 basis points in 2017, that would be a fairly cautious move up,” he says. Because the U.S. economy is “limping along” at 2% to 3% annual growth, he doesn’t anticipate big interest rate moves.
“I don’t think interest rates will take off unless this economy just surges all of a sudden and I don’t know what the basis of that would be,” he notes.
Barr says the U.S. is in its fourth-longest business cycle but is under-performing. He describes it as a steady-as-you-go economy that consumers are driving. “There’s no reason to believe the U.S. consumer is going to back away, but what we don’t have is business investment. Until we solve immigration and energy and the Affordable Care Act and regulatory burdens, some of that business capital will probably remain on the sidelines—they’re probably 2018 or 2019 events, depending on the government.”
A lot of unknowns.
With the U.S. government in transition, Barr says “no one is sure what’s going to happen next.”
He ponders what the 115Congress and President-elect Trump will be able to accomplish in 2017. He says the deficit is the “elephant in the room’ that neither Trump nor Hillary Clinton were willing to address during their respective presidential campaigns.
“The question there is what should we do with the tax code?” Barr says. “In Washington right now, there are more lobbyists per square foot to address tax reform than anything else. Some people think it’s more important than the Farm Bill.” He adds, “We’re entering a transition time economically and politically, and there’s a lot on everyone’s plate to plan for the future.”