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| Duane A. Lienemann Nebraska Extension Educator |
In talking beef I think we should be cognizant of what the beef specialists are saying what may be ahead as we plan for the future. Those farmers who studied and utilized the 2014 Farm Bill became very familiar with something called the Food and Agricultural Policy Institute (FAPRI) at the University of Missouri. We utilized their benchmarks to help make decisions on which direction to go between ARC-CO and/or PLC. In light of the troublesome outlook for grain production I wanted to see where we might be with the livestock industry and brought up the FAPRI projections. I was a little afraid of what they are looking towards and there is both good and bad news in the same sequence. We will also peek at crop projections.
FAFRI Beef Projections: Unfortunately the FAPRI projections are also not an April Fool’s joke, but have both bad and good news. First the good news. Though profitability in the cow-calf sector is down sharply, it is still above historical levels. I think sometimes we get lulled into thinking we have not been in good straits these last couple of years. Maybe not so bad. It is likely that this will promote further small increases to the herd in coming years. At least that is what the analysts with FAPRI indicate in that organization’s ”U.S. Baseline Briefing Book” that was released earlier this past month. If you want to read it yourself you can go to: http://www.fapri.missouri.edu/wp-content/uploads/2016/03/FAPRI-MU-Report-02-16.pdf .
I for one find it disturbing that the FAPRI projects net returns per cow this year at $211.53 per head which doesn’t sound too bad, but then declining to $85.55 next year and to $9.63 in 2018, showing a downward trend. And even worse entering negative territory in 2019 and 2020 (-$21.91 and -$14.02 respectively). That is the bad news for our cattlemen. However, the light at the end of the tunnel is that these same projections call for annual returns growing from $10.45 in 2021 to $98.32 in 2025. Not big gains by any means but at least not in the negative. But we have to look at the lean years in between.
In terms of specific prices, FAPRI projections see fed steer prices (all grades, 5-area direct) declining from an average of $133.41 per cwt this year to a period low of $117.94 in 2018. Prices increase from there to $135.74 in 2025. Feeder steers (600-650 pounds, Oklahoma City) average $194.34 per cwt for this year in the projections. They decline to a period low of $155.12 in 2019 and then increase to $189.51 by 2025. The FAPRI baseline model uses different variables to project a wide range of market outcomes for 2017-2025. Analysts note some of the resulting 500 outcomes are much higher or lower than the averages in the report. As we know from the Farm Bill with grain, FAPRI depends on a model that takes 500 samples to replicate potential for prices. I am hoping that later draws of 500 will be much more bullish, but I am not holding my breath.
FAFRI Crop Projections: If you have been keeping up with the saga that is the Farm Bill you most likely are interested in what is projected for crops. What stood out is that the analysts suggest that the increasing carryover stocks from hefty global crops of grains and oilseeds the past couple of years continue to pressure crop prices in the FAPRI projections.
As an example, projected corn prices in the FAPRI projections average $3.75 per bushel for the 2016-17 marketing year. Corn prices average less than $4.00 per bushel for the 2017-2025 period. Corn prices exceeded $5.00 per bushel in about 10% of the 500 FAPRI outcomes for each year, and fell below $3.00 per bushel in more than 10% of the outcomes.
Now just what does that mean? I think it appears that we are looking at several years of pretty tight financial situation for U.S. agriculture. I think most everyone, or at least those intimately involved in farming, know that farm income is less than half of the 2013 peak. I am certain both farmers, bankers and land owners are very nervous about this and unfortunately we can probably expect it to remain low for the next several years. It is true that we’ve had some cost reductions, but not nearly enough to offset the decline in receipts. Most input costs have stayed pretty much status quo and some have gone up.
When you analyze all of this, with farm income below peak levels and interest rates forecast to increase, it doesn’t take an MBA to determine that there will likely be continued pressure on farm finances and farm real estate values. And as a matter of fact in order give some perspective, FAPRI analysts explain that U.S. average farm real estate values increased by 50% between 2007 and 2015. But according to USDA’s National Agricultural Statistics Service (NASS). FAPRI projections call for farm real estate values declining by $250 per acre between 2015 and 2019. That’s on average, of course. The FAPRI folks note that actual results will differ across the country and will be sensitive to developments in agricultural markets and the economy. As we face these uncertainties we also have to contend with the property tax issues that don’t help the situation at all. Folks we may have a serious situation that we are just entering. What can we do to offset these challenges?
One thing is for sure, we are going to have to be the best managers we can be. We will need to make some very tough decisions, perhaps tighten our belts a little and evaluate some practices we have implemented when crop and livestock prices were significantly higher. Work with your lender; communicate with landowners and family; and above all – Pray!
The preceding information comes from the research and personal observations of the writer, which may or may not reflect the views of UNL or Nebraska Extension. For more further information on these or other topics contact D. A. Lienemann, Nebraska Extension Educator for Webster County in Red Cloud, (402) 746-3417 or email: dlienemann2@unl.edu or on the web at: http://extension.unl.edu/statewide/webster
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