As Winter Looms, Key Risks Keep Ag Outlook Cool

As Winter Looms, Key Risks Keep Ag Outlook Cool
Photo | Story Source: Federal Reserve Bank of Kansas City

By: Cortney Cowley, Economist Kansas City Federal Reserve

The outlook for agriculture remains downbeat but is beginning to show signs of stabilization. Despite aggregate measures of farm income being significantly lower than in previous years, the farm income forecast for 2017 was relatively unchanged from the 2016 estimate. Although farm income was expected to stabilize, growing inventories and trade uncertainty remain key risks to the outlook. High yields boosted production of corn and soybeans to near-record levels for the fourth year in a row. Greater production was expected to boost inventories and hold prices at lower levels. Alongside growing domestic supplies, demand from exports and international trade have become more important, but agricultural producers and bankers have expressed concerns over increasing foreign competition and uncertainty surrounding trade deals, such as NAFTA. In the cattle sector, price variability is a primary concern, but despite larger inventories, prices and net margins are above year-ago levels.

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In conclusion, although expectations for farm income have stabilized, the stabilization has occurred at much lower levels than in previous years. Continued oversupply of agricultural products, especially crops, is a significant risk and would likely keep prices from rising to more profitable levels. International trade could help support agricultural prices and incomes, but uncertainty over trade deals has generated additional risk for the agricultural sector. In the first half of 2017, strength in the livestock sector supported U.S. farm income, but increasing cattle inventories and greater price variability suggest that the outlook could remain weak.

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