December 18, 2017
The 2017 Agricultural Year in Review
By David Widmar
With 2018 around the corner it’s time to reflect on the last 12 months and review the big stories in agriculture. The 2017 Year in Review provides our overview of the big stories that shaped and guided the year. Here’s our list:
Another Difficult Year in Agriculture
We think it’s a safe bet that most producers, agribusinesses, and yes even agricultural economists are ready for economic conditions to improve, but 2017 didn’t prove to be much of a turnaround year. Instead, it looked a lot like the last year. Here are some of the “highlights.”
1) Net Farm Income Turns Higher; Still a Tough Farm Economy– The USDA’s latest estimates of net farm income show 2017 was slightly improved from 2016, but the real story is that net farm income is still well below the long-run average. While 2017 is improved, it’s a small improvement of an overall still difficult farm economy.
2) Producers More Optimistic– While net farm income, commodity prices, and budgets failed to significantly improve in 2017, ag producers have been more upbeat in 2017. Producer sentiment turned higher in November 2016 – on the heels of the 2016 election results – and spent all of 2017 well above 2016 levels. Time will tell how long the optimism will hold on.
3) Another Summer Rally, Another Year of Low Prices– Almost as if it’s stuck on repeat, commodity prices, especially in the grain markets, took a turn lower in March before a brief summer production scare rally. They then turned sharply turning lower for the late summer and fall. Today, the frustratingly low commodity price environment continues for most agricultural commodities.
4) Sign of the Times?– Farm debt continued its push higher in 2017. Although rising, loan delinquencies remained relatively low. Still, a few headline-grabbing problems started to emerge. For instance, CHS found itself in a difficult position as it sued an 80,000-acre customer in Michigan for defaulting on more than $145 million in loans in August.
Big Yields, Growing Stocks
It seems hard to believe that just a few years ago stories concerned with perpetually tight grain supplies dominated the headlines. That environment created a big economic incentive to expand production. Then, the weather started cooperating and here we are with worries about perpetual commodity surpluses, hmm. Here, are some of the top stories for 2017 which will go down as another big production year.
5) Above Trend Yields (AGAIN?!?!?!)– After a tricky spring, below-trend national yields seemed possible. Then dryness in Iowa made it impossible to scroll through Twitter – or other social media platforms- and not conclude below-trend yields were inevitable. David pointed out that there are always some problem spots and social media seems to be quite adept at finding them. This year the bad spots proved to be true outliers rather than a reflection of widespread problems. Commodity markets rallied briefly in late June and early July, but it would turn out to be another year of large crops after all. Big yields and growing ending stocks dominated the story for corn and soybeans.
While the story has been growing stocks in the U.S., some comfort can be taken in shrinking global stocks to usage ratios.
6) Wheat Acres Flee to Soybean– All eyes in the spring were on soybean acres. After large back-to-back declines in wheat acres (down 9 million acres, or 16%, since 2015), the question on everyone’s mind was “will the U.S. plant more acres of soybean than corn?” While this didn’t happen in 2017, the U.S. planted 89.5 million acres of soybean in 2017, the largest planting on record.
7) U.S. Beef to China– After more than a year of work, U.S. beef found its way onto shelves in Chinese grocery stores in 2017. As we wrote about earlier (here and here), beef consumption and production trends in China have set the tone for a potentially interesting marketplace in the coming years. Of course, the big questions is how U.S. beef fits with familiar Australia and Brazilian options.
8) A Volatile Year After All…Dicamba Headaches All Around– The promised (and hoped for) solution for herbicide resistance, especially in soybean fields reached the market and fields in 2017. While in-season dicamba herbicide application was effective for managing difficult to control weeds soybean fields, the impacts were sometimes noticed across the fence row. It doesn’t seem like all these issues will be completely resolved before 2018.
Agribusiness Shuffling Continues
The past several years have seen lots of changes and consolidation in agribusiness. The trend continued in 2017.
9) Progress on M&A Continues– Progress on previously announced mergers continued in 2017. In a spin-out from the Bayer/Monsanto acquisition, BASF agreed to buy Bayer assets- including the LiberyLink and soybean seed business- for nearly $7 billion. This will put BASF in the seed business, something new for the company.
A new acquisition in 2017 was DuPont Pioneer purchasing Granular – a farm management software start-up firm- for $300 million.
Back in 2015, Monsanto announced it would sell it’s Precision Planting business to John Deere. This sale came under Department of Justice review with concerns about planter market share. In May, the sale to John Deere was scrapped. Not to be deterred, Monsanto announced in July that AGCO had agreed to purchase the business.
10) Strong Ag-Tech Funding Continues– Late in the year, two big capital funding announcements were made. Farmers Business Network announced in November that it had raised an additional $110 million in capital – bringing total investments raised to $200 million for the company. There was also a hint that an initial public offering (IPO) may be in few years out.
Indigo Ag also announced finalizing its fourth round of capital raised, a new $47 million. This brings it’s total raise to $203 million.
11) U.S. Economy Grows– There was good news in 2017 for the U.S. economy. After slow first-quarter growth (1.2%), conditions improved by the third quarter and grew 3.3%, the fastest third-quarter growth since 2014.
Unemployment – another important measure of the health of the economy – continued lower in 2017, recently reaching 4.1%- the lowest levels since 2000.
12) New Fed Chair– While everyone has been on “Fed-Watch” for higher interest rates – which the Fed did raise rates twice in 2017– the biggest news came in the form of a new Chair. President Trump broke with recent tradition and did not reappoint Janet Yellen to a second term. Instead, he appointed Jerome Powell, who is expected to begin his term in early 2018.
13) Dollar Up, Dollar Down– It was an active year for exchange rates. An important factor for agricultural exports, the U.S. dollar started 2017 higher – after surging post-2016 elections- before trending lower (see chart here). The trade-weighted U.S. Dollar Index started 2017 at 96.5 and is currently near 88.
14) Bitcoins Abuzz– Any review of 2017 wouldn’t be complete without mentioning the most popular cryptocurrency, Bitcoin. Although it has its prominent detractors, it’s been quite a year for the Bitcoin and Bitcoin enthusiasts. Starting 2017 at nearly $1,000 per coin, the digital currency has skyrocketed in recent months to exceed $15,000 per coin.
Policy and Politics
President Trump’s election made the last 2 points in our 2016 review, and political events and uncertainty were a big part of the 2017 story as well.
15) NAFTA: The On-Again, Off-Again Uncertainties– Shortly after taking office, Trump ended the U.S.’s participation in the pending Trans-Pacific Partnership (TPP) trade agreement in a blow to many pro-trade ag groups. The focus then shifted to the 23-year-old North American Free Trade Agreement (NAFTA) with Canada and Mexico.
To renegotiate or withdraw, seemed to be the question. At a news conference this Spring, Trump announced plans to renegotiate the Trade agreement. The renegotiation efforts, however, haven’t ended the rumors and speculation (even in recent weeks) of a U.S. withdrawal. Recently, farm groups became worried by some of the messaging coming from the administration.
16) Health Care Reform… Tax Reform … Tax/Health Care Reform– It’s been an active year for federal policy. After attempts to repeal/reform/rework/redo health care failed to materialize, Congress moved to reforming the tax code. To energize those efforts, ‘tax reform’ focused on tax cuts and then circled back to include health care components. While the House of Representative and the Senate have both passed a tax bill, reconciling these bills will require some work.
As the 2017 legislative session got underway, calls for a massive Infrastructure spending bill seemed likely, but has since gone into hibernation. A proposed Border Adjusted Taxes (or BATS) was also sent to dormancy. A BAT would have increased government revenue but would have impacted exchange rates making it difficult for businesses and industries that rely on exports (cough, cough, agriculture). It will be interesting to see if the BAT stays on the sidelines in the coming months as Congressional leadership has announced it will focus on tackling the Federal Deficit (which was exacerbated by proposed tax cuts) in 2018.
17) Renewable Fuels turns ugly… #RFSwars – Perhaps one of the quieter political feuds has renewable fuels (and the RFS) squarely in the middle of it. First, there was Trumps’ advisor Carl Icahn and RINs. Now there is the EPA, Senators Chuck Grassley, and Ted Cruz. Whether these were just initial skirmishes in a longer-term battle or flare-ups that will resolve quietly is yet to be determined.
18) ARC-CO Payments Down, PLC Up – As expected, ARC-CO payments started to ratchet down in 2017. This year, lots of counties that had been big recipients in previous years were shut out in 2017. More than likely, this trend which will continue in 2018. PLC, on the other hand, started to kick-in. In 2017 PLC payments were just $550 million short of ARC-CO payments.
19) Farm Bill, More Questions than Answers – The listening sessions have started, some background work has taken place, and a few interesting ideas have been put forward for the next farm bill. Next year, maybe?
What were your big stories in 2017? We can’t wait to see what 2018 has in store. We hope you enjoy the holidays and have a prosperous 2018 (and maybe even $4 corn).
Brent and David