This is the time of year for prognosticating. Trying to see into the future is a common feature of business and human beings. Let’s look at a couple of 2016 agricultural industry outlooks.
Wells Fargo economist Michael Swanson forecasts US grain and livestock sectors will have a “challenging environment.” A strong US dollar(USD) is contributing to that challenge. A chart Swanson uses in his forecast shows that both China and the rest of the world have lower net trade balances with the US than 2011-2014. Russia and the Ukraine currency devaluations have grain importing nations sourcing their needs from them rather than the US. Swanson sees the US beef herd sector continuing its rebuilding but with lower 2016 prices. The strong USD will pressure the chicken and pork sectors who have foreign competitors and are much more reliant on foreign exports than beef. So far, about 11% of US dairy production went to exports during 2015 but that is down from 13% in 2014. European union and New Zealand dairy sector competition will pressure US dairy prices. the EU may also become a consistent competitor now that supply control has been eliminated.
Much lower crude oil prices have many positives and negatives. Lower expenses for crop producers should come from products that use oil and natural gas as precursors. But corn prices will follow low oil prices due to ethanol’s correlation to crude oil. Lower crude oil prices will have both positive and negative effects in the broader US economy as well. These will play out in the US ag sector in uncertain ways. If the positive effects increase US GDP, they will likely strengthen demand and US farm income.
All of the foregoing leads Rabobank forecasters to increase price variability in their most recent 2016 outlook. However Rabobank’s price outlook appears to be more favorable for hog, sugar, corn and beef than Wells Fargo’s outlook. Rabobank sees price pressure in the soybean complex and wheat. Rabobank writes about increased risk in all sectors which is related to reduced oil prices, stronger USD and greater weather risk in the US.