Outlook Panel Dissects Ag Economy

Industry Execs Brace for More Low Returns, Volatile Trade Environment

Emily Unglesbee , DTN Staff Reporter
Rabobank executive Rajiv Singh and Land O'Lakes COO Beth Ford discuss the prospect of a depressed farm economy coupled with uncertain trade relations at the 2017 Ag Outlook Forum in Arlington, Virginia. (DTN photo by Emily Unglesbee)

ARLINGTON, Va. (DTN) -- While it's true that the farm economy has historically cycled through ups and downs with some regularity, don't expect to ride the up cycle anytime soon.

That was the message from Rajiv Singh, Rabobank's North American wholesale CEO. Based on the company's models, "Crop farming will not see a typical upturn but rather an extended period of low returns," Singh told attendees of the 2017 Ag Outlook Forum, during a panel discussion with other industry executives.

"Using corn as a proxy for the markets, [our models] still predict corn around $4 for the next five years; even in the best-case scenario, it's slightly over $4; worst case, it's around $3.20," he said.

Singh's prediction was echoed somewhat by fellow panel speaker, Luke Chandler, John Deere's deputy chief economist. Chandler noted that in John Deere's 179-year history, the company had only seen declining sales for three years in a row three times -- most recently from 2013 to 2016.

"And in that 179 years, we've never had four years of declining sales," Chandler added. "So we're hoping 2017 doesn't create new history for us."

The industry executives also stressed the importance of preserving standing trade partnerships -- as well as forging new ones -- and expressed concerns over the damage volatility and uncertainty in this arena could do to the current farm economy.

WHERE DO WE STAND?

Both Chandler and Singh sought to place the current environment of low and declining commodity prices within a historical context.

Traditionally, the farm economy sees a short and modest growth rally after a financial downturn, Singh said. It grew 33% from 1992 to 1996, and 39% from 1986 to 1988.

Knowing this, we should set our expectations fairly low, Singh said, which will seem especially painful, given that this most recent downturn was preceded by one of most impressive growth rallies in history -- a 278% increase in the farm economy from 2001 to 2011.

Chandler pulled up historical data on ag equipment sales to put the current downturn in perspective. During the financial crisis of the '80s, the industry's tractor sales saw a 60% decline; the early '90s saw 23% decline and the late '90s brought with them a 35% decline.

Currently, industry tractor sales are 60% below where they stood in 2013, just as they were in the 1980s -- a disturbing comparison that Chandler was quick to soften: "Thankfully, our net income is nowhere near where it was in the 1980s, and it's certainly worth noting also that the peaks that we came off before going into this downturn were as high as we've ever had in history."

ALL EYES ON TRADE RELATIONS

For panelist Beth Ford, Land O'Lakes' COO, finding new outlets for dairy products -- in particular the milk powders that go into products like chocolate and baby formula -- is one of the most pressing priorities for the dairy industry. International markets such as Mexico are essential to this effort, and the new administration's message on trade has spooked markets and dropped powder prices significantly in a matter of two weeks, Ford noted.

"I think the administration and President [Donald] Trump understand the importance of trade -- it appears to me he is re-setting the frame...to one-on-one negotiations," she said. "Those need to happen with speed. What is the real challenge to us is the resulting uncertainty and the inability to understand where we need to make investments," she said.

Chandler agreed, noting, "U.S. agriculture probably has the most to lose of any sector when it comes to trade." John Deere was a vocal supporter of the Trans-Pacific Partnership, which President Trump recently scuttled with an executive order. "There was a lot of opportunity in there," Chandler said, citing potential beef export opportunities to Japan as an example. "For now, we'll just have to wait and see [on trade policy], but there certainly is a lot to lose," he added.

For more information on the schedule and events of the Ag Outlook Forum, see the USDA website here: https://www.usda.gov/….

Emily Unglesbee can be reached at Emily.unglesbee@dtn.com

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