“I showed you that just so you can’t say I’m not bringing any good news,” Johnson told row crop producers in attendance.
Most of the farmers in attendance were very well aware that there was plenty of less than good news to share. They well knew, for example, that corn prices have fallen from heady highs of $7 to $8 a bushel two years ago to about $4.50 a bushel now. Johnson cited a survey of producers that showed only 17 percent of them believed corn prices would go above $4.50.
“This might not be a bad year to forward contract a portion of your corn,” Johnson said.
Key to any projection of commodity prices, he said, is a measure of ending stocks to use, which measures how much of a certain commodity is available at a certain time. Corn had, at the time of last month’s presentation, 62 days of corn on demand. Wheat had 96 days.
“Exchange rates can have a big influence in moving wheat and keeping that price supported,” Johnson said. “We’re projected to eat into supplies a little bit, but wheat looks a little better than some of the others.”
Meanwhile, the supply-and-demand situation for cotton alarms Johnson.
“Ninety percent of what we need next year is already in a warehouse,” he said. “A lot of that is in China.”
Or is it? Johnson described the data on Chinese cotton as “pretty erratic.”
“Basically, you’re pinning your hopes on crop insurance and partnering with the Chinese government and hoping they don’t stick it to you,” he said.
Johnson said that hedge funds can be just as unpredictable as any foreign market.
“Hedge funds buy when a commodity is hot and they sell when it’s cold,” he said. “They catch a lot of fire for impacting prices. There’s not widespread optimism to invest in agricultural commodities right now. The hedge funds are reflecting that.”
Other projected trends show agricultural land values remaining stable, interest rates rising and tighter credit standards from banks. Short-term energy costs are projected to be down a little bit due to increased production from fracking technologies, which will help lower farmers’ input costs.
Cattle prices are projected to remain strong for a couple of years as the inventory continues to decline, but he said the prices are expected to start dropping in 2017 as the cattle herd rebounds.
“When you hear the banker and the barber talking about all the money they made off their calves, you’ll know the trend is starting to change,” he said.
A new farm bill was still pending when Johnson gave his presentation, but on Jan. 27 a Farm Bill conference report was filed, leading to the Jan. 29 passage of a measure that was expected to clear the Senate without any trouble. Final approval will mean U.S. farm policy can avoid going back to the Permanent Law of 1949 that features minimum price guarantees instead of direct payments and doesn’t even mention soybeans. The government could also have been required to buy milk at about double the going rate, which would cause milk prices to increase dramatically,
When the new farm bill is passed, Johnson said that AgriLife Extension will have a decision tool available to help producers navigate it. The tool will be available on the Texas A&M AgriLife Extension Agricultural Economics website, located online at http://agecoext.tamu.edu/.