Texas Agriculture January 6, 2017 : Page 9

Outlook ominous for farm economy By Jessica Domel News Editor What does the new year mean for America’s farmers and ranchers? Will the economy improve? Will growers fi-nally see improved commodity prices? It depends. There’s plenty of optimism about the economy, in general, but it likely won’t extend to the farm economy, ac-cording to Bob Young, chief economist and deputy executive director of Pub-lic Policy for the American Farm Bu-reau Federation. Young said the Federal Reserve was confident enough to raise short-term interest rates 0.25 percent in mid-December. He said unemploy-ment is down to very low percentages at this stage in the game–4.6 percent or so. Hope for the new presidential ad-ministration and changes in both tax policy and regulations led to stock market improvements following the election. “I think for the general economy, expectations are pretty positive at this stage in the game,” Young said. At the end of 2016, cattle markets rose a bit, but that’s likely to level out in 2017. “There’s just a lot more meat sup-ply out there. Not just beef, but pork and poultry, as well,” Young said. It’s going to be difficult to move re-tail prices with an increased supply, according to Young. And if retail pric-es don’t go up, it could be difficult to move feeder or fed-cattle prices. That will then take its toll on other live-stock, as well. “I think it will just be a contin-ued challenging, hold on by your fin-gernails kind of mood, as we move through 2017,” Young said. Agribusinesses are reacting to the difficulties in the sector. In mid-December, Monsanto share-holders voted to move forward with its merger with Bayer AG. Regulators in both the United States and Euro-pean Union will have to approve the merger. They’re also investigating ChemChina’s purchase of Syngenta AG and the merger of Dow Chemical and DuPont. “I think one of the real reasons for that kind of activity to go on is because they’re looking forward, see-ing decreased revenue streams on farmers’ parts and recognize that if they’re going to hold on, they’re go-ing to have to do something to try to get increased market rationaliza-tion. Clearly on that front you’re see-ing adjustments,” Young said. Young predicts we’ll continue to see sharp declines in equipment sales, as well. Sales of tractors with more than 100 horsepower were down 25-30 percent in mid-Decem-ber relative to that time last year. “If you’re a dealer, you’re backing up what had previously been leased equipment on your lot. You have pretty heavy used inventories. It’s just going to continue to be pretty tough on those folks that provide support to the ag sector in 2017,” Young said. Some of the positive messages ag-riculture saw in the past were likely one-off or perfect-storm type events, according to Young. “We substantially increased the use of corn, for example, for ethanol, which provided us with pretty sig-nificant price increases,” Young said. “But now, even though the demand is much higher than it was before we started that process, there really isn’t any more growth in demand and it takes demand growth to sup-port prices.” American farmers are planting to meet that demand. Until there’s more demand growth over a long period of time, farmers will be hard-pressed to see where the next long-term price increase will come from. “That’s not to say we’re not going to have the potential for short-term price pops. We’ve got significant quantities of stocks that China’s holding both in corn, as well as in cotton. Until those stocks get them-selves worked off, those short-term price pops may be fairly limited,” Young said. He continued, “Once we get the Chinese stocks dealt with, I think we can talk about some noticeable price support.” Moving through 2017, Young en-courages farmers and ranchers to really sharpen their pencils and look at expenses. “Know why your costs would be different than the guy across the street, for example. Do some kind of benchmarking if you could find ways to do that. Do you necessarily have to buy the latest seed technology or could you drop back a year or two on that front and substantially lower your seed costs and, at the same time, not necessarily knock your yields all that hard?” Young said. Look at fertilizer use. Are you fer-tilizing for the economic optimum as opposed to the yield optimum? They may not necessarily be the same thing, according to Young. It’s also important to look at hold-ings. Are you leasing land that isn’t producing well? Young says this may be the year you have to walk away. “Really look at the cost side of the house. I’d also be watching the mar-kets. If we do get one of these weath-er events and we get a price pop, use that to take advantage of price on some of your year 2017 crops. I’d definitely look at insurance to give you some cover so that you’re not ex-posed to that kind of yield risk, etc.,” Young said. Some farmers may need to plant less or choose alternative crops. “Look at all of those options and make sure that you’ve sharpened that pencil to as sharp a point as you can,” Young said. Young also recommends looking at your taxes now. “As we dig deeper and deeper into all this in order to try to figure out the right kind of recommendations, we are looking at some very differ-ent areas. For example, when you look at your taxes, it’s one thing to say I want to do this to minimize the tax bill, but maybe there’s some things that you want to be looking at from a more defensive perspective. Paying taxes aren’t necessarily the worst thing to do if you could end up with better cash flow, better reserves for the following year,” Young said. For example, your accountant may say you ought to prepay for some expenses for 2017. But, per-haps, it wouldn’t be such a bad idea to wait to buy it when you have bet-ter cash flow and better reserves. “I’m not making that as a strong recommendation. Just really make sure you have the cash reserves to be able to roll through,” Young said. J ANUARY 6 , 2017 9

Gray Skies Ahead

Jessica Domel

Outlook ominous for farm economy

What does the new year mean for America’s farmers and ranchers? Will the economy improve? Will growers finally see improved commodity prices?

It depends.

There’s plenty of optimism about the economy, in general, but it likely won’t extend to the farm economy, according to Bob Young, chief economist and deputy executive director of Public Policy for the American Farm Bureau Federation.

Young said the Federal Reserve was confident enough to raise short-term interest rates 0.25 percent in mid-December. He said unemployment is down to very low percentages at this stage in the game–4.6 percent or so.

Hope for the new presidential administration and changes in both tax policy and regulations led to stock market improvements following the election.

“I think for the general economy, expectations are pretty positive at this stage in the game,” Young said.

At the end of 2016, cattle markets rose a bit, but that’s likely to level out in 2017.

“There’s just a lot more meat supply out there. Not just beef, but pork and poultry, as well,” Young said.

It’s going to be difficult to move retail prices with an increased supply, according to Young. And if retail prices don’t go up, it could be difficult to move feeder or fed-cattle prices. That will then take its toll on other livestock, as well.

“I think it will just be a continued challenging, hold on by your fingernails kind of mood, as we move through 2017,” Young said.

Agribusinesses are reacting to the difficulties in the sector.

In mid-December, Monsanto shareholders voted to move forward with its merger with Bayer AG. Regulators in both the United States and European Union will have to approve the merger. They’re also investigating ChemChina’s purchase of Syngenta AG and the merger of Dow Chemical and DuPont.

“I think one of the real reasons for that kind of activity to go on is because they’re looking forward, seeing decreased revenue streams on farmers’ parts and recognize that if they’re going to hold on, they’re going to have to do something to try to get increased market rationalization. Clearly on that front you’re seeing adjustments,” Young said.

Young predicts we’ll continue to see sharp declines in equipment sales, as well. Sales of tractors with more than 100 horsepower were down 25-30 percent in mid-December relative to that time last year.

“If you’re a dealer, you’re backing up what had previously been leased equipment on your lot. You have pretty heavy used inventories. It’s just going to continue to be pretty tough on those folks that provide support to the ag sector in 2017,” Young said.

Some of the positive messages agriculture saw in the past were likely one-off or perfect-storm type events, according to Young.

“We substantially increased the use of corn, for example, for ethanol, which provided us with pretty significant price increases,” Young said. “But now, even though the demand is much higher than it was before we started that process, there really isn’t any more growth in demand and it takes demand growth to support prices.”

American farmers are planting to meet that demand. Until there’s more demand growth over a long period of time, farmers will be hardpressed to see where the next longterm price increase will come from.

“That’s not to say we’re not going to have the potential for short-term price pops. We’ve got significant quantities of stocks that China’s holding both in corn, as well as in cotton. Until those stocks get themselves worked off, those short-term price pops may be fairly limited,” Young said.

He continued, “Once we get the Chinese stocks dealt with, I think we can talk about some noticeable price support.”

Moving through 2017, Young encourages farmers and ranchers to really sharpen their pencils and look at expenses.

“Know why your costs would be different than the guy across the street, for example. Do some kind of benchmarking if you could find ways to do that. Do you necessarily have to buy the latest seed technology or could you drop back a year or two on that front and substantially lower your seed costs and, at the same time, not necessarily knock your yields all that hard?” Young said.

Look at fertilizer use. Are you fertilizing for the economic optimum as opposed to the yield optimum? They may not necessarily be the same thing, according to Young.

It’s also important to look at holdings. Are you leasing land that isn’t producing well? Young says this may be the year you have to walk away.

“Really look at the cost side of the house. I’d also be watching the markets. If we do get one of these weather events and we get a price pop, use that to take advantage of price on some of your year 2017 crops. I’d definitely look at insurance to give you some cover so that you’re not exposed to that kind of yield risk, etc.,” Young said.

Some farmers may need to plant less or choose alternative crops.

“Look at all of those options and make sure that you’ve sharpened that pencil to as sharp a point as you can,” Young said.

Young also recommends looking at your taxes now.

“As we dig deeper and deeper into all this in order to try to figure out the right kind of recommendations, we are looking at some very different areas. For example, when you look at your taxes, it’s one thing to say I want to do this to minimize the tax bill, but maybe there’s some things that you want to be looking at from a more defensive perspective. Paying taxes aren’t necessarily the worst thing to do if you could end up with better cash flow, better reserves for the following year,” Young said.

For example, your accountant may say you ought to prepay for some expenses for 2017. But, perhaps, it wouldn’t be such a bad idea to wait to buy it when you have better cash flow and better reserves.

“I’m not making that as a strong recommendation. Just really make sure you have the cash reserves to be able to roll through,” Young said.

Read the full article at http://texasagriculture.texasfarmbureau.org/article/Gray+Skies+Ahead+/2675755/372175/article.html.

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