October 18, 2021
More Treats Than Tricks: The Farm Economy In 2021
By David Widmar
There has been no shortage of worrisome news for agriculture throughout 2021: growing ending stocks, higher input prices, and tax reform, to name a few. But while there are many risks and uncertainties on the watchlist, it is important not to lose sight of an overall positive story.
Strong Net Farm Income
In early September, the USDA updated its net farm income estimates. At $113 billion in 2021, sector profits are positioned to be the eighth highest since 1960 (in inflation-adjusted dollars).
The improved outlook hasn’t been felt equally across all commodities, but the change in cash receipts has been most abundant in corn, soybeans, and hogs. Wheat, cattle & calves, and broilers are also higher.
Read more: Four Key Insights from the USDA’s Farm Income Estimates (AEI.ag)
Record Early Corn Export Sales
September marks the beginning of the marketing year for corn and soybeans. This is a good time to review and benchmark activity. For the 2021/22 marketing year, early corn export sales – sales reported before the new marketing year began – exceeded 900 million bushels, a record. Probably not a surprise, but China is a big driver behind the uptick.
Early soybean exports sales are down from the record 2020/21 activity but remain historically strong and well above the trade war slump.
Read more: 1) New Marketing Year Export Sales (AEI Premium), 2) China’s U.S. Ag Purchases… Deep Dive into Non-Soybean Activity (AEI Premium)
China Keeps Buying
We opened an Ag Forecast Network question in early 2020 about the probability of China buying more than $35 billion U.S. ag products. The question isn’t directly linked to the “Phase One” trade agreement but would represent a record amount of purchases. Historically, China’s annual purchases hit a record $29 billion in 2013 and nearly broke through that ceiling in 2020 ($28.8 billion).
China’s monthly cumulative pace has been breakneck in 2021 (Figure 3). China’s purchases are very seasonal, especially for soybeans, so great uncertainty remains, but the pace through August suggested annual purchases may exceed $33 billion in 2021.
Read more: 1) China’s Impacts on Global Agriculture in 12 Graphs (AEI.ag), 2) What’s Going on With China and Corn, Part 1, Part 2 (AEI Premium)
Farmland Value up Significantly
As a result of increased profitability in the ag sector and lower interest rates, farmland values have turned higher. The USDA’s summer estimates showed values increased the most in the Corn Belt and Great Plains. In South Dakota, Nebraska, Kansas, and Wisconsin farmland values were up more than 10%.
Looking ahead, farm real estates values and cash rental rates will be a focus heading into 2022. Of course, higher cash rental rates would add to the overall higher cost structure that producers are facing.
Read more: 1) 5 Maps: Farmland Value and Rental Rates (AEI Premium), 2) Record Farmland Prices- What’s Driving It? Is it Sustainable? (AEI Premium), 3) Low Interest Rates and Asset Values (AEI Premium)
Outlook for 2022 Still Remains Profitable
The conversation about 2022 will be dominated by higher input costs, lower commodity prices, and significant uncertainty, but the early outlook remains profitable. This underscores the importance of making sound decisions that consider all the relevant data, not just a few soundbites. It’s never too early to update or review your budgets and projects for next year.
Read More: Thinking about the 2022 Situation (AEI Premium)
Wrapping it Up
The farm economy is certainly in a better place than it was from 2016 through mid-2020, but that doesn’t mean conditions are easy or stress-free. A few years ago, producers faced tough budget outlooks with few good choices. Today, the outlook is favorable, but the pressure of sorting through numerous potential decisions combined with great uncertainties also takes a toll.
While 2021 and the outlook for 2022 will vary across commodities, regions, and farms, the goal of this post was to provide a few of the positive highlights. Producers can also use these as a template for reviewing their farm performance in 2021 and plans for 2022.