At the end of every year, various publications, websites, etc. have their “Top 10” or “Top 5” list for that year. In this issue of “FOCUS ON AG”, I am highlighting my “Top 5 Ag Issues” for 2019, based on issues that were discussed in the columns throughout the year. Following are my “Top 5 Ag Issues” for 2019:
1. Weather issues and crop production challenges.
“Mother nature” was not kind to many farmers in the Upper Midwest in 2019, as well as in some areas of the Eastern Corn Belt. Many weather reporting stations across the region reported record precipitation in 2019, with several areas receiving 50% or more above the normal growing season rainfall. This resulted in very late planting in some areas, crop drown-out and poor growing conditions in other areas, and widespread areas of delayed harvest. In fact, some portions of North and South Dakota, and adjoining areas of Western Minnesota, still have thousands of acres of corn yet to be harvested. Severe storms with hail and wind damage to crops also resulted in yield reduction in many parts of the region.
Some growers in Western Minnesota, along with North and South Dakota, are reporting their lowest corn yields since the disaster year of 1993. Overall, corn yields in region were 10-20 percent below long-term averages, and probably 15-30 percent lower than 2015-2017 average yields. In general, soybean yields were 5-20 percent below long-term average yields.
Minnesota is projected to have a 2019 corn yield of 170 bushels per acre, which compares to 182 bushels per acre in 2018 and the record yield of 194 bushels per acre in 2017. Other 2019 projected statewide corn yields that are below recent averages are North Dakota at 142 bushels per acre, South Dakota at 151 bushels per acre, Indiana at 165 bushels per acre, and Illinois at 179 bushels per acre. The projected 2019 corn yield for Iowa is better at 192 bushels per acre. USDA is estimating the 2019 Minnesota soybean yield at 45 bushels per acre, Iowa at 53 bushels per acre, South Dakota at 43 bushels per acre, and North Dakota at 33 bushels per acre, which are all below average yields in recent years.
2. The ongoing Trade War.
During 2019, the so-called “trade war” with China continued, which kept increased tariffs in place on many ag products being shipped to China. The total amount of ag exports has decreased in two years from over $20 billion in 2017 to less than $10 billion in 2019. Soybeans and pork have been two of the commodities hit the hardest by the added tariffs on grain and pork products being shipped to China. Tariffs have also remained in place on products traded with Canada and Mexico, the partners with the U.S. in the North American Free Trade Agreement (NAFTA). China, Canada and Mexico account for over 40 percent of all U.S. ag exports on an annual basis.
The new United States-Mexico-Canada Agreement (USMCA) to replace NAFTA was agreed upon by the leaders of the three countries late in 2018. However, the USMCA agreement needs to be approved within the various countries, including by the U.S. Congress, before being implemented. Congress did not take up any action on the USMCA agreement until very late in 2019, needing to work out some language in the agreement related to labor and environmental issues. As we end 2019, it appears that the USMCA agreement will be approved by Congress and implemented in early 2020, which should help stabilize agriculture trade among the three counties. Late in the year, there was also some positive news regarding phase #1 of a new U.S. and Chinese trade agreement. If implemented, this agreement could greatly enhance U.S. exports of certain ag products to China in the coming years.
3. Tight cash flow margins and the declining farm economy.
Earlier in 2019, The University of Minnesota reported that the median net farm income for Minnesota farmers in 2018 was only $26,055, which was the lowest in the past 23 years of analyzing farm business management records. 2018 was the fifth year in a row of sup-par net farm income levels in the State, which was the first time that this has occurred since the 1980’s. Some farm operators across Southern Minnesota had 2018 net farm incomes that were even lower, feeling the effect of reduced crop yields that resulted from excessive rainfall during the 2018 growing season, as well as the impacts of reduced crop and livestock prices, resulting from the U.S. trade wars.
Net farm income levels for 2019 are likely to again be quite low in many portions of the region, due to the reduced crop yields and continued low grain and livestock prices during most of the year. The level of crop insurance carried by farm operators for the 2019 crop year, along with grain and livestock marketing decisions that were made, will likely have a significant impact on profitability for individual farm businesses. It is estimated that government payments will make up one-third or more of potential net farm income for 2019 in the U.S farm sector. These payments will primarily come from crop insurance indemnity payments, disaster payments, and market facilitation program (MFP) payments to farmers that are being paid to offset income loss from the ongoing trade wars.
4. RFS waivers and the impact on the ethanol industry
The granting of “small refinery exemptions” (SRE’s) by the U.S. Environmental Protection Agency (EPA) has garnered considerable attention by ethanol and biodiesel plants, farm organizations, and political leaders during 2019. In the past couple of years, the EPA has granted an unusually high number of SRE’s, which has impacted demand for renewable fuels and has negatively impacted the profitability of the ethanol and biodiesel industries. Since EPA increased the use of SRE’s, 19 ethanol plants in the U.S. have either closed or idled production, including the Corn Plus ethanol plant at Winnebago, MN, with additional plants reducing their production levels. It is estimated that the 2.5 billion gallon per year biodiesel industry in the U.S. has lost nearly 10 percent of the total demand due to the SRE’s granted by EPA in the past three years. The Trump Administration has proposed some changes to the procedures for the Renewable Fuel Standard that will hopefully address some of the issues related to the granting of the SRE’s. However, as we end 2019, it is still unclear if the EPA will limit the use of SRE’s in the future or implement the strategies to stabilize demand for renewable fuels.
5. Implementation of the New Farm Bill.
The new Farm Bill, titled the “Agriculture Improvement Act of 2018” will govern U.S. farm programs from 2019 through 2023. Sign-up for the new farm program for the 2019 and 2020 crop years is currently ongoing at local USDA Farm Service Agency (FSA) office and will continue until March 15, 2020. Producers will have a choice between the price-only “price loss coverage” (PLC) and county yield revenue-based “ag risk coverage” (ARC-CO) program choices for the 2019 and 2020 crop production years. Beginning with the 2021 crop year, producers will be able to make an annual election between the ARC-CO and PLC program choices. Farm operators with prevent plant acres in 2019 may also consider the “ag risk coverage individual” (ARC-IC) program option, which utilizes farm-level crop yields. FSA and University Extension Services are hosting many farm program information meetings in early 2020.
Kent Thiesse has prepared an information sheet titled: “Evaluating Farm Program Decisions for the 2019 and 2020 Crop Years” To receive a free copy of this information sheet, send an e-mail to: kent.thiesse@minnstarbank.com
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Note — For additional information contact Kent Thiesse, Farm Management Analyst and Senior
Vice President, MinnStar Bank, Lake Crystal, MN. (Phone — (507) 381-7960);
E-mail — kent.thiesse@minnstarbank.com) Web Site — http://www.minnstarbank.com/