US ag economic outlook seen as positive but with slow growth

Fiscal year 2019 agricultural exports are projected at $141.5 billion, as grain and feed exports are forecast down $100 million to $33.7 billion. Oilseeds and products exports are projected at $27.8 billion, down $100 million from November expectations, driven by lower soybean volumes.

The U.S. Department of Agriculture expects U.S. farmers to plant only 85 million acres of soybean acres in 2019, down 4.7 percent, thanks to falling commodity prices and ballooning stocks amid a trade war with China. Corn acres are projected to take over most of those lost bean acres and rise 3.3 percent to 92 million acres this spring.

U.S. Department of Agriculture Chief Economist Robert Johansson unveiled these projections at USDA’s annual Agricultural Outlook Forum, held in Arlington, Virginia, Feb 21.

Johansson showed net farm income dropping to $66 billion in 2018, down 28 percent from the 10-year average. While farmers’ debt-to-asset ratio remains fairly stable at 13.5 percent, debt financing has risen sharply in the last few years, reaching 25 percent of net farm income in 2018, Johansson said.

Livestock, poultry and dairy exports are raised $300 million from the November forecast to $30.4 billion, largely as gains in beef, pork, poultry, dairy and other products offset declines for hides, skins and furs. Cotton is forecast unchanged from November at $5.9 billion. Horticultural product exports are unchanged at $35.3 billion.

U.S. agricultural imports in fiscal year 2019 are forecast at $128 billion, up $1 billion from the November forecast. This increase is led by horticultural products, livestock and meats, and grains and feed imports. The U.S. agricultural trade surplus is forecast at $13.5 billion, down $1 billion from the November forecast.

World GDP grows, but expected to slow

Per capita world GDP growth of 1.9 percent in 2018 is the strongest since the post-financial crisis rebound in 2010-11. World GDP growth is expected to slow slightly to 1.6 percent in 2019, due in part to global trade tensions, but there is some optimism regarding future dialogue between China and the U.S.

There is more uncertainty than normal regarding U.S. economic conditions due to a lag in the release of economic indicators after the government shutdown, such as U.S. Gross Domestic Product for the fourth quarter and U.S. International Trade in Goods and Services for December 2018.

However, U.S. per capita GDP was estimated to have grown at above trend at 2.2 percent in 2018 and is forecast to remain the same in 2019, with continued optimism regarding the current economic landscape, especially given the strong labor market and low inflation.

Across North America, per capita growth reached 1.8 percent in 2018 but is expected to slow to 1.4 percent in 2019. A strong labor market is expected to be a recurring theme in North America, with Mexico and Canada forecast to have relatively low unemployment rates of 3.7 and 5.9 percent in 2019, respectively. Mexico’s per capita GDP is also expected to grow 2 percent in 2019, while Canada’s is expected at 1.4 percent. Conditions across North America are partially dependent on the fate of the United States-Mexico-Canada Agreement.

A slight slowdown in per capita GDP growth is expected for the Asia and Oceania regions. Growth in Asia is expected to slow to 3.6 percent in 2019 from an estimated 3.8 percent in 2018, due in part to weakening economic conditions in China. China’s growth is expected to decline from 6.2 percent in 2018 to 5.8 percent in 2019, due to slowing international trade, a softening real estate market and weaker domestic demand.

Australia saw 1.3 percent growth in 2018 and expects growth to decrease to 1 percent in 2019. In Japan, however, GDP is expected to increase from 1 percent in 2018 to 1.2 percent growth in 2019, fueled by domestic consumption.

Per capita growth in the Eurozone is hampered by a slowdown in global trade. The region expects export annual percentage growth to decrease to 2.8 percent for 2018, but exports will rebound to 3.3 percent in 2019. Real per capita GDP growth is expected to fall to 1.6 percent in 2019 from 1.9 percent in 2018. Spillover effects of heavy Italian debt and the threat of a no-deal in Brexit also threaten the Eurozone area.

Latin America continues to rebound from the recession that resulted in falling per capita income in 2015 and 2016. Per capita GDP growth in Latin America and the Caribbean is expected to increase from 0.1 percent in 2018 to 0.7 percent in 2019. In 2019 Brazil’s per capita GDP growth rate is expected to reach 1.6 percent, up from only 0.5 percent in 2018.

Recessionary conditions continue in Argentina, where per capita GDP is expected to contract 2.5 percent and unemployment is expected to peak at 10.1 percent. Venezuela also faces a continuation of its severe recession into 2019, due in part to low oil revenue, political instability and external debt concerns.

U.S. exports

Fiscal year 2019 grain and feed exports are forecast at $33.7 billion, down $100 million from the November forecast. Corn is forecast at $11.8 billion, unchanged. U.S. corn remains price-competitive. Sorghum is down slightly to $500 million on lower unit values.

Feeds and fodders are forecast at $7.7 billion, which is unchanged. Exports of distillers’ dried grains with solubles to key markets, including Mexico and Southeast Asian countries, remain robust. Strong exports of alfalfa hay to Saudi Arabia and the United Arab Emirates more than offset a decline in the Chinese market. Wheat is forecast at $7.5 billion, unchanged from the previous forecast as higher unit values offset slightly lower volumes.

Unit values are up based on tightening global and domestic supplies. Volumes are down based on reduced expectations for new-crop shipments due to smaller-than-expected U.S. winter wheat planted area and continued strong export competition.

Rice is forecast at $1.7 billion, unchanged from the previous forecast. Volumes are expected to remain the same as previously forecast, as improved prospects for long-grain exports to Central America offset lagging shipments to South America.

Oilseeds and products exports are projected at $27.8 billion, down $100 million, driven by lower soybean volumes. Export unit values are unchanged despite record U.S. production and declining China soybean demand. Continued strong soybean meal demand, considering reduced output in Argentina, continues to add value to U.S. exports, offsetting some of the decline in the soybean sector. Soybean oil remains virtually unchanged from November’s forecast.

The cotton forecast is unchanged at $5.9 billion. Higher expected exports to Turkey, due to a smaller domestic crop, are offset by weaker import demand in Vietnam. Volume is unchanged.

The beef forecast is raised $100 million to $7.7 billion on sustained demand despite stronger prices. The pork forecast is raised $200 million to $5.4 billion, mostly on stronger-than-expected unit values. Variety meat exports are unchanged at $1.5 billion.

Hides, skins, and furs are lowered $300 million as weak global demand for leather depresses prices and volumes. The forecast for poultry and products is raised $200 million, largely due to robust demand for competitively priced broiler meat. Dairy products are raised $100 million as stronger global prices are expected to more than offset lower volumes.

Horticultural product exports are unchanged at $35.3 billion. Whole and processed tree nuts are unchanged at $9.1 billion, with majority of the shipments destined for Europe and Asia. Fresh fruit and vegetables are forecast unchanged at $7.4 billion, with top markets including Canada, Europe and South Korea. Processed fruit and vegetables are unchanged at $7.2 billion.

Larry Dreiling can be reached at 785-628-1117 or [email protected].