Chief economist shares thoughts at Agricultural Outlook Forum

A year ago when Seth Meyer, U.S. Department of Agriculture chief economist, spoke at the Agricultural Outlook Forum, it had been less than 24 hours since Russia invaded Ukraine.

The event pushed a tremendous amount of uncertainty into agriculture and energy markets. 

“Risk and uncertainty have always been fundamental characteristics of farming, and few other industries are as vulnerable to the vagaries of the weather or the threat of long-term effects of climate change,” Meyer said. “However, the war in Ukraine is unlike a drought as it had a sudden beginning. It also has no clear anticipated conclusion and remains a source of uncertainty in agricultural markets even as the human tragedy continues.” 

Global food markets saw an immediate halt in supplies from Ukraine—one of the world’s top agricultural producers and exporters. Before the invasion, it was in the top five for exports of corn, wheat, sunflower oil, and sunflower meal. Even though it was able to shift some export volumes to overland routes, Meyer said, it wasn’t until July 2022, Black Sea ports could resume.

American producers

Wet, cold weather slowed the start of the 2022 growing season, but for many the weather quickly turned dry and warm and corn and soybean planting quickly progressed. Because of the weather delay, the national number of crop acreages was lowered. 

“At the same time drought was unrelenting in much of the West,” Meyer said. “Farmers were also facing a sharp increase in input costs relative to previous years, especially fertilizer, producing some anxiety about potential margins despite crop prices that remained strong.”

Despite all that, many farmers entered 2023 with a sense of optimism even with the continued uncertainty.  

“There are positive economic signals, but uncertainty is high as inflationary pressures persist and interest rates rise,” he said. “In agriculture, crop and livestock prices are still strong despite declining from recent highs and the farm sector, as a whole, enters the new year in good financial health with a strong cash position and solid balance sheet following a year of record-high net cash farm income in 2022.”

There are still risks, and not all commodities or sectors are faring as well as others. There are implications on the western drought and what it’s doing to cattle numbers and wheat conditions.  The cost of inputs and the future of High Pathogenic Avian Influenza cases and the unusual weather conditions that are apt to disrupt crop production in parts of the U.S., remain front and center for producers.

Meyer said risks remain, but the U.S. economy and farm economy are strong. Globally, the economy too faced challenges—including the war in Ukraine, inflation, and lingering supply problems. Much of the macro-economic environment in 2022 and moving into 2023 has been driven by inflation dynamics and recessionary risks.

“The rate of U.S. consumer price inflation peaked in June 2022, reaching 8.9%, the highest in over four decades,” he said. “Inflationary pressures have begun to ease, falling recently to 6.3%, following aggressive successive interest rate increases by the Federal Reserve.” 

Inflation was also felt among food consumers, with grocery prices rising and peaked at 11.2% in August. But there is a light at the end of the tunnel, possibly, Meyer said.

Egg prices saw the most significant growth, 70% year-over-year, partially due to the decrease in flock numbers because of HPAI.

The macroeconomic outlook for 2023 has improved over the past few months, as downside risks of recession have lessened and the prospects of a "soft”or at least a “softer”landing appear to be improving.  

From the International Monetary Fund’s estimate released in January 2023, growth is projected to increase 1.4% for the real GDP during 2023 to the previous estimate of 1% released in October 2022.

Meyer sees the grain market volatility easing, but prices remain elevated.

“Grains and oilseed prices are down from recent peaks but remain relatively high by historic standards driven by strong demand and tightening global stocks of many of the major commodities, including corn, wheat, and rice,” he said. 

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Many of the major commodities are still at historical standard levels for beginning stocks for 2023-24, even with record-setting forecasts for soybean harvest in Brazil as continued solid demand from China is projected for the coming marketing year. Corn used for ethanol in the U.S. is expected to remain unchanged based on expectations for flat motor gasoline consumption, he said. A strong global economic growth would support a rebound in cotton mill use.

Input costs, fuel and interest costs in the U.S. and other parts of the world have remained elevated. Fuel prices have come down from the peak levels, he said. 

Projected U.S. crop insurance prices do give a little bit of clarity for per acre revenue guarantees in the high production cost environment, though.

Crop size estimates

In 2023, the initial expectations for planted area does show growth in acres for corn, wheat and soybeans when compared to the previous years—with the combined acres estimated at 228 million acres. This is nearly a 3% increase from 2022 acres, Meyer said. 

“After a period of trending lower wheat acres, this represents a sharp rebound, but is not likely to be a trend reversal for the long-term,” he said. 

Soybean acres are expected to remain largely unchanged from the planted area in 2022.

“Demand for soybeans in the United States is expected to be driven by stronger demand for domestic crush—largely driven by growth in biofuel use,” he said. “While exports likely face competition from continued production growth in South American during the 2023-24 U.S. marketing year.” 

Meyer expects the corn planted area to increase about 3% relative to last year, even though 2022 plantings were affected by weather-related delays, prevented planting in key-producing regions and some expressed concern by producers about the higher costs of corn production and uncertainty about input availability.

Projected acres for wheat during 2023-24 are nearly 50 million acres, up 3.8 million acres from last year and the highest since the 2016-17 crop year. The 2023-24 harvest-to-plant ratio is projected at 77.5%, similar to last year’s 77.6% and below the 10-year average of 82.1% reflecting the long-term drought continuing to affect the Southern Plains region and with the crop entering dormancy in very poor condition, the ultimate harvest ratio will depend significantly on conditions leading up to, and through, emergence. The ongoing war in Ukraine will likely play a role in wheat supplies too. 

Prices producers are expected to receive for 2023-24 corn soybean, wheat, cotton and rice are expected to decline relative to last year, but will remain high relative to recent history. On the livestock side, Meyer expects to see increases in hog and poultry production, while cattle is expected to decline.

“Despite continuing to face challenges to both supply and demand throughout 2022, total meat and poultry production was record large,” he said. “Disease outbreaks were costly, notably HPAI for the poultry industry, while drought conditions in the West and Midwest regions throughout most of the year heavily impacted hay supplies and accelerated placement and marketing decisions, pulling forward supplies, for the cattle sector.”

Meyer expects red meat and poultry production to reflect the many challenges producers are facing. 

In 2023, red meat and poultry production is forecast to decrease fractionally to 106.9 billion pounds as declines in beef production more than offset higher pork and poultry production. If realized, the projected decline in production is small, but it will be the first decline in total red meat and poultry production since 2014.  

“Notably, beef production is forecast to fall by 6%, with steer and heifer slaughter in the first half of the year the expected to be down slightly from last year,” Meyer said. “While marketings in second half of the year will decline reflecting lower first-half placements and smaller feedlot numbers due to the tightening supplies and a dwindling herd.” 

Net farm income

Net farm income is expected to decrease in 2023 with lower receipts and higher expenses. After record high income in 2022, net cash farm income is expected to be $150.56 billion in 2023.  

Inflation-adjusted net cash farm income is expected to remain above the 20-year average for 2023. With lower crop and livestock receipts, government payments and higher expenses, Meyer expects a reduction in farm income for this year. 

“When adjusted for inflation, 2023 net cash farm income is forecast to decrease by $44.72 billion from its record high in 2022 but remain above the 2002-2021 average of $130.5 billion,” he said.

Production expenses are expected to go up about 4% in 2023, slowing versus the 2021-22 rate of 18.5%. 

The risk of insolvency in the farm sector is expected to increase slight in 2023, but the likelihood of default across the sector remains well below the 1985 peak and is also lower than 2020 rates. The debt-to-asset ratio is forecast to tick upwards, while the debt-to-equity ratio will rise as well. The equity-to-asset ratio is forecast to decrease from 86.91% to 86.78%. 

Looking beyond next season, producers acknowledge uncertainty and prospects for farm income.

Meyer reiterated how during the past three years of market disruption and economic uncertainty reinforces how important productivity and growth is to maintain an abundant and affordable food supply. 

“World populations continue to grow, putting ever-greater pressure on the agriculture system to supply more while using less, protecting resources for future generations,” he said. “The focus on sustainability recognizes that resources are finite and suggests new approaches to production practices to use these resources more efficiently.”

This does, however, require a change in direction and mindset from traditional practices.  

“Sustainability and profitability need not be at opposite ends of the spectrum; in fact, they can be mutually reinforcing, generating benefits for the environment, the climate, and the bottom line,” Meyer said. “The high input costs facing producers again this year are a reminder of the value that can be gained by using resources more efficiently, and where possible, reducing dependence on fossil fuel-based products.” 

As a country the U.S. is one that encourages innovation and has been at the forefront in science, tech, and management practices—all supporting a safe, abundant and sustainable food supply and distribution.  

Kylene Scott can be reached at 620-227-1804 or [email protected].