Market Outlook
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The optimism farmers exhibited to start the year has begun to erode, according to the Purdue University /CME Group Ag Economy Barometer. The monthly Ag Economy Barometer measured a decline in optimism as farmers’ expectations for current market conditions going into planting season with a drop of 13 points on the university’s Current Conditions barometer.

“The February survey reflected a significant boost in optimism among agricultural producers after the announcement of the second round of MFP payments, Jim Mintert, Director of the Center for Commercial Agriculture at Purdue University reported. “However, it appears their positive impact eroded quickly. Compared to responses from a year ago, fewer farms said they expect their operation to grow in the future.”

Slight movements in the trade negotiations in China have provided some optimism for U.S. markets.

“The lack of material progress in the U.S./China trade negotiations continues to weigh negatively on U.S. agricultural commodity market prices with corn, soybean, and wheat futures all declining during the first few months of 2019,” says Paul Anderson, chief credit officer for GreenStone.

SWINE: In livestock, hog prices, which are also highly dependent on export markets, have started to rebound during the first two weeks of March as the outbreak of African Swine Flu in the Chinese hog herd has led to an increase in U.S. hog export volume. To date, there have been 111 confirmed cases of African Swine Fever on Chinese hog farms, with the outbreak now touching 28 different provinces across the country. In total, roughly 1 million pigs have been culled thus far in an effort to try to control the spread of the disease. 

Current estimates are that the Chinese hog herd has contracted by 13 percent over the last 12 months, while the number of breeding sows is down 15 percent over the same period. Given this supply contraction, domestic Chinese hog prices hit 14-month highs in early March, with many industry observers expecting further price increases in the coming months. To put the significance of the issue in context, China is home to half of the world’s hogs.  Further, China’s domestic annual pork consumption makes up roughly half of total global pork consumption. Given these market dynamics, China has started to increase the volume of imports of U.S. pork products in order to meet consumer demand.

“The double jeopardy of disease and high prices is causing a contraction in the Chinese hog market, which is leading to favorable gains for U.S pork products being exported to China and other markets,” Anderson says. “Yet to be determined, is if this contraction will lead to a decrease in the tariffs currently in place on U.S. pork exports to China that continue to be hindered by a 62 percent duty.

DAIRY: Closer to home, the continued consolidation of the Michigan and Wisconsin dairy industry is having an impact. While year-over-year production continues to climb, the rate of increase is slowing. Additionally, cow numbers have started to decline; however, per cow productivity continues to improve. 

“The Michigan dairy industry continues to see consolidation, with the total number of dairy producer permits down 12.2 percent over the last 12 months,” Anderson says.  “That being said, total cow numbers were only down 1.4 percent over the same period, indicating cows from producers exiting the industry are being absorbed into other farms rather than being taken out of production.”

Additionally, daily milk production per cow increased 1.2 percent over the last 12 months, leading to total 2018 Michigan milk production being essentially flat compared to 2017. Wisconsin production also remained relatively flat in the previous 12 months with only a one percent increase in milk production. Nationally, milk production in the 23 major dairy producing states during December totaled 17.1 billion pounds, up 0.9 percent from December 2017. The daily production per cow in the 23 major states averaged 63.4 pounds for December, up 0.7 pounds from December 2017.

DAIRY PROCESSING: Looking toward the future, investment in dairy processing continues to provide optimism for the long-term sustainability of the region’s dairy industry. In the past 24 months there has been over $900 million invested in milk processing in the region, including the new 8 million pound per day cheese plant in Clinton County, Michigan.

According to recent news reports, the facility is on track to begin taking milk in October 2020. The processing complex, which is modeled after the Southwest Cheese Company plant in Clovis, New Mexico, is a joint-venture between the Irish dairy company Glanbia, Dallas-based Select Milk Producers and Dairy Farmers of America. When complete, the project, called Spartan Michigan, LLC, will house a 375,000-square-foot manufacturing and warehouse facility, a wastewater treatment plant, and an adjoining 85,000-square-foot protein processing plant, which will be owned and operated by the Iowa-based Proliant Dairy Ingredients. In addition to helping balance production within the Michigan milk shed (the facility will consume nearly 20 percent of Michigan’s current milk production), the plant will create roughly 250 new full-time jobs and

600 new temporary jobs to the St. John’s area.

“We remain optimistic about the long-term viability of agriculture in our region and throughout the country,” Anderson says. “The continued investment in infrastructure supporting agriculture in Michigan and Wisconsin indicates the commitment of many to agriculture.”

FUTURE FOCUS: However, current market uncertainty continues to make farmers wary of making large investments in their operations, according to the Purdue report.

“When producers were asked whether they have plans to grow or increase the size of their current operation in 2019, 50 percent of respondents said that they either “have no plans to grow” or “plan to reduce in size,” compared to 39 percent in 2018,” Minert reports. “Some farms in the no growth category could have limited growth opportunities because they are under financial stress. Last month, when 25 percent of farmers surveyed indicated they expected to take out a larger operating loan in 2018 versus 2019, a follow-up question found that 27 percent of those farms were taking out larger loans due to unpaid operating debt carryover, suggesting they were experiencing financial stress.”

Link to full article: here


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