The 2018 Red River Crops Conference was Jan. 17 and 18 in Altus, Oklahoma, and the meeting brought farmers from the region together to hear about ag policy, ag markets and agronomic research from cotton, grains and livestock experts.
John Robinson, professor and economist for Texas A&M AgriLife Extension Service, College Station, updated growers on the cotton market this first quarter of 2018.
The current situation is a little perplexing, Robinson told growers, because while there is a tighter world supply demand figure, the United States balance sheet is still bearish and ending stocks have been projected higher than last year. Yet, prices are still high and there might be some demand influences farmers should watch.
“The USDA projects ending stocks from 2016-17 to be about 2.75 million bales, and for 2017-18 to be 5.7 million bales more than doubled the 2016 crop,” Robinson said. “When you double ending stocks, that’s usually bad. Yet, prices remain high. Some people think some bullish things will affect the bottom line.” He told growers to pay attention to U.S. economic indicators and to monitor domestic consumer demand.
“Look to real GDP growth,” he said. “Are wages expanding and is consumer sentiment higher?” Expect slow growth of 3 percent or more, but overall U.S. consumer confidence is higher for the first time in nearly a decade.
U.S. cotton is an export market, and Robinson said export sales this first quarter are ahead of the game.
“Demand is picking up and expanding fairly decently,” he said. “The USDA projects export sales for the 2017-18 crop to be 14.8 million bales. Last week we sold for export almost 80 percent of that 14.8 million.” This front-loading of the export market could cause prices to get weaker as the year progresses, he warned.
While the USDA predicts higher planted acres, at over 13 million acres, the 2018 U.S. cotton supply will depend on rain.
“South Texas says it will plant more, Oklahoma and Kansas, when they get the modules out of the way, will plant more,” he said. “But, it’s dry.” The NOAA forecast is for a drier and hotter than normal 2018 so he assumes there will be a higher abandonment figure at 3 million acres.
“Still, that’s a big supply of cotton,” he warned. “If we go from doubling our ending stocks and then bring in another 6.29 million ending stocks, that’s a recipe for weakness.”
Cattle market
Derrell Peel, Oklahoma State University Extension livestock marketing specialist, Stillwater, provided a cattle market update.
Comparing 2016 to 2017, Peel said 2017 was a lot more stable in the calf market with a strong finish and good momentum coming into 2018.
The U.S. beef cow inventory has been in expansion since 2014 and growth should start to slow down. The bigger calf crop in 2017 though, means there will be bigger calf crops in 2018 and 2019, too, Peel said. He told growers to expect higher supplies through 2019 and on into 2020 based on the cowherd expansion.
Starting last July, heifer placements in feedlots were up and that’s how the herd expansion is slowing down, Peel added. The supply is also constrained some with feedlots doing better to turnover cattle and keep carcass weights down.
“Keeping carcass weights down helps us move through these big supplies in the best possible fashion,” he said.
What’s puzzling is that with total meat production figures on the rise, retail beef prices have also gone up.
“Even with more pork and poultry on the market, and more beef,” Peel said. “That’s a good measure of good demand.” So, what’s the cause?
China, Peel said, has become the No. 2 beef importing country and five years ago it wouldn’t have appeared on that list.
“They don’t eat a lot of beef per capita, only about 11 to 12 pounds per person,” Peel said. “But, they have a lot of capita. Even a tiny change in per capita levels is a big deal in numbers. The law of Chinese markets? Any number times 1.4 billion is a big number.” With the new access to the Chinese market last June, there’s big potential for U.S. cattlemen.
“If we get just 10 percent of our current level of exports, we could make China the sixth largest U.S. beef market,” Peel explained.
With the big pipeline of cattle coming from the U.S. herd expansion, keeping export markets is going to be key. Peel told producers to pay special attention to the renegotiation of the North American Free Trade Agreement and trade agreements with Asian countries.
“The risk in this market is if anything stumbles on the demand side, supply pressures will take hold very quickly,” Peel warned. “There is more downside risk in this market than upside. Demand could increase, but it’s a long shot.”
Grain opportunities
Trent Milacek, Northwest area ag economics specialist for Oklahoma Cooperative Extension Service, Enid, gave a grain market outlook to producers. He said wheat producers could take some comfort in that prices have probably hit their bottom.
“The January report didn’t have wheat seedings as low as we were expecting, but given the fundamentals, like dry conditions in the U.S. and possibly Russia, and winterkill concerns, there is a slight possibility between now and harvest we could see prices move up,” Milacek said. If there is a problem with corn and soybean production this summer, wheat could also see a slight rally.
Milacek said it’s critical for wheat producers to know their true breakeven price—including all costs as well as a family living cost— and be ready to pull the trigger and sell when the prices rally to that point.
“That number $5 gets thrown around a lot,” Milacek said. “People ask when we’re going to get back to $5 wheat. Well, we did it last year, and we probably will rally to that again. It may be short and only for a week.” That’s why, he said, a producer who knows his costs and is ready to sell when that price gets above his costs is on track to survive.
“If we let that true breakeven slip away, hoping for higher prices, a jackpot, to make up for previous losses, then we’re going to get stuck selling lower like we did this year,” he added. “Right now we’re trying to survive.”
Likewise, it’s really important for wheat growers to do all they can to make their wheat acres as productive as possible, Milacek said. That means planting on as productive of acres as they can, applying nitrogen and fungicides and giving the crop an advantage, because it’s going to take high yields to make wheat make any money, he advised.
“You’re in it to win it if you plant wheat,” he said.
For those farmers who are concerned about the downturn in the rural economy, Milacek advised them to reach out for help.
“The people out there who are afraid of losing the battle, of losing the farm, who are nervous about the future, there’s resources out there to get help,” he said. “We have more intensive budgeting and finance tools available from Oklahoma State and we can go out to farms and work with them, advise them how they can improve their profitability.
“The people who came into this with strong liquidity positions are burning through their liquidity,” he continued. “There is no silver bullet, but we can work to help you make your farm more efficient. You just have to ask for help.”
Jennifer M. Latzke can be reached at 620-227-1807 or [email protected].
