2014 expected to be good year for ag
Lower fuel and feed prices could help agriculture's bottomline in 2014.
Farmers and ranchers in the Pacific Northwest can expect lower input costs in 2014 and plentiful credit for those who qualify, according to experts interviewed by the Capital Press.
Here’s what they say about key farming sectors in the year ahead.
Agricultural economists expect overall farm income in the United States to be down in 2014. But they also point out that’s compared with 2013, which is projected by the USDA to be another record year for farm income.
Farm income should still be good this year for several crops grown in the Pacific Northwest, particularly wheat, pulse crops and apples and pears, said Desmond O’Rourke, president of Belrose Inc., a private consulting firm in Pullman, Wash.
“Overall, I think farm income in 2014 will be below the last couple of years but only because those record years were so exceptional,” said O’Rourke, a former ag economist with Washington State University.
Falling grain prices, the result of increasing supplies more in line with demand, account for much of the expected decrease in farm income, said Mike Duffy, an Iowa State University agricultural economist.
That’s expected to benefit livestock producers.
“We’re expecting cattle to look stronger in 2014 than the crops,” he said.
According to a 2014 agricultural outlook by Purdue University, moderating crop prices means “that the next few years are expected to be ones of belt-tightening for crop producers … with some need to lower expectations after a period of rapid increases. On the opposite side, the animal industries and other end users of grains and oilseeds are now expected to enter several years of higher incomes….”
Farmers should continue to see more money available for borrowing from more lenders in 2014 because agriculture has been doing so well, said Fred DePell, executive vice president of financial services for Northwest Farm Credit Services in Spokane, Wash.
Northwest has nearly $11 billion in outstanding loans in agriculture, forestry and fisheries in five states.
“In 2013, there was an incredible amount of competition among lenders because ag was doing pretty good. In 2014, we think there will still be a lot of institutions interested in competing for that business,” DePell said. “There’s nothing to change those conditions for the near future.”
Borrowers are cautiously optimistic, more money is available and the climate is great for borrowers and lenders, he said.
Long-term interest rates are up about 1 percent from a year ago but still very competitive in the 6 percent range and short-term about 4 percent, DePell said.
Small grain, cattle and row crops are using more of their own money and borrowing less for operations, DePell said.
Charles McElligott, managing director of Pacific Territory for Rabo AgriFinance, said credit availability will be good because of higher levels of liquidity among producers, a generally good outlook in most ag sectors and a desire of lenders to get their money working.
“Producers with strong balance sheet and profitability fundamentals, coupled with perceived management strength, will continue to benefit from readily available capital sources,” McElligott said. Lenders will be much more diligent in reviewing weaker credits where balance sheet and income returns are stressed, he said.
Greater availability of forage and feed will bring significant relief in feed prices in the near term, said Wilson Gray, University of Idaho extension livestock economists.
Feed prices will moderate in the short term and decrease even further with another good crop year, he said.
Drought in the Southern Plains in 2011 and widespread drought in 2012 were game changers for feed grain and hay prices. And winter kill of alfalfa in the Midwest last year exacerbated the tight supply of alfalfa, he said.
While the West still has some drought issues, conditions have improved in most of the country, and 2013’s improved crop season is bringing feed prices down, he said.
Corn is down from last marketing year’s average of $6.90 a bushel to $4.20 and is likely to come down another 15 cents in the 2014/15 marketing year.
That price projection is based on a normal crop year and the slowing ethanol demand as gasoline and diesel blenders hit the “10 percent blend wall,” Gray said.
Alfalfa is also coming down, off the national average of $210 a ton in the 2012/13 marketing year to $185 a ton. That price should come down another $50 to $135 a ton in the 2014/15 marketing year as winter kill areas go back into alfalfa production, he said.
Chemicals and seed
Surging fertilizer production is likely to keep prices reasonable in 2014 compared to the high rates seen in recent years, according to an industry analyst.
The price for urea, a common source of nitrogen, hit its most recent peak of $700 per short ton in spring of 2012 along the Gulf of Mexico, a common wholesale market.
High prices have spurred production in recent years, and larger supplies drove wholesale urea prices down to roughly $300 per short ton in 2013, said David Asbridge, president of the NPK Fertilizer Advisory Service.
Production outages outside of the U.S. have since increased the wholesale urea price to the $330 per short ton range, he said.
That price can be expected to weaken in early 2014 and then strengthen some by spring, though a major spike is unlikely, Asbridge said.
“What we’re looking at is an oversupply,” he said.
For farmers, the cost of urea is higher than on the wholesale market due to the cost of transport and storage.
The outlook for phosphate and potash fertilizers — the other key plant nutrients — is similar due to expansion of existing production facilities, Asbridge said.
Lower commodity prices may also hinder demand for fertilizers among growers in 2014, particularly since phosphate and potash accumulate in the soil, he said.
“They will tweak that formula based on what their crop budget looks like,” Asbridge said.
Since the spring of 2013, prices for potash have tumbled from about $450 per short ton in the Midwest wholesale market to about $370, he said.
The breakup of an eastern European cartel has allowed production to rise and prices to drop, he said.
In phosphate, the entrance of Saudi Arabia into the market with large new facilities has caused supplies to pile up, Asbridge said.
Since spring 2013, the wholesale price per short ton has fallen from about $470 to roughly $330, though it may pick up a bit in spring 2014, he said.
Aggregate demand for pesticides and chemicals is likely to be flat because weaker commodity prices have made farmers less eager to spend on inputs, said Paul Patterson, an economist at the University of Idaho.
If there is strong insect or disease pressure in 2014, however, chemical prices may rise by 1 to 3 percent, he said.
Seed prices will depend on the crop in question, as production is affected by the market conditions for each type of plant, Patterson said.
For example, corn, grains and dry beans are likely to be cheaper in terms of seed because of the downturn in those markets, he said.
“There’s not an opportunity for them to push prices higher than they currently are,” Patterson said.
Increasing domestic and foreign supplies of crude oil should prevent producers’ fuel costs from spiking in 2014, experts say.
In fact, the U.S. Energy Information Administration is expecting a slight drop in the average price of gasoline in the coming year, to $3.43 a gallon from $3.50, noted Matt Erickson, an American Farm Bureau Federation economist.
“The good news for 2014 is the bearish outlook” for fuel prices, Erickson said. “That assumes there are no unexpected events. All eyes of course will be on the Middle East situation.”
Advanced technologies for crude oil and natural gas production continue to increase domestic supply and reshape the U.S. energy economy, EIA administrator Adam Sieminski asserted recently.
The government expects domestic crude oil production to grow annually by an average of 800,000 barrels per day through 2016, when the American output could near the all-time high of 9.9 million barrels per day set in 1970, the administration explained in a news release.
Meanwhile, energy use by cars and light trucks is declining because of improved vehicle efficiency and only a slight growth in travel – a trend that should further ease pressure on prices.
“Certainly this will help farmers in 2014,” Erickson said, adding that prices should ease slightly for diesel as well as for gasoline.
He acknowledged that $3.40 a gallon “is still expensive for producers, but it’s better than $3.50 a gallon on average.”
Taxes and regulation
A new farm bill, immigration reform and protection from regulatory over-reach are among the primary concerns of producers in 2014, according to the farm industry groups.
Tax relief, clarity regarding genetically-engineered crops and stable markets would be nice, too.
The American Farm Bureau Federation looks for a farm bill to be approved by mid-January, said Dale Moore, the group’s public policy director in Washington, D.C. Meanwhile, the bureau is tracking legislation that will free up funds to improve harbors, ports, locks and dams. With 60 percent of the Midwest corn crop moving down the Mississippi and Northwest wheat growers dependent on the Columbia River’s elevators and ports, farmers have a stake in a well-functioning transportation system, Moore said.
The American Farm Bureau Federation is calling for elimination of estate taxes, opposes labeling food that contains genetically modified material and hopes to repeal the Health Insurance Tax (HIT) that was put in place as part of the Affordable Care Act, or Obamacare. The tax is levied on insurance companies’ premiums, which are passed on to consumers. The price increase hits farmers and ranchers hard because most are not large enough to be self-insured, and so buy insurance on the open market.
Farm groups favor immigration reform, but if legislation bogs down again in Congress, farm groups hope some sort of stand-alone ag labor visa will be enacted. Having an adequate labor force is critical when harvest time comes for some of the region’s specialty crops, such as apples, pears, berries and cherries.
State and national Farm Bureau leaders are concerned about regulatory creep by the federal Environmental Protection Agency, and the Oregon Cattlemen’s Association joins in that view.
The EPA and National Oceanic and Atmospheric Administration recently said they won’t approve Oregon’s program for controlling “non-point” water pollution in coastal waterways. The decision could impact farming and grazing operations. Groups such as the Cattlemen’s Association argue that best management practices are working.
Ag groups expect more state or local attempts to label or outlaw genetically-engineered crops. Biotech ag is “something we need and something we support,” Moore said.
Groups continue to monitor the Food Safety Modernization Act, which has been three years in the making, Moore said. “It’s definitely a work in progress,” he said. “We strongly support food safety, but we want to make sure the rules that purport to improve food safety actually do so.”
Reporters Mateusz Perkowski, Carol Ryan Dumas, Dan Wheat, Tim Hearden, Sean Ellis and Eric Mortenson contributed to this report.