Economist: Farm margins tighten as crop, livestock supplies rise

Meat available per person in the U.S. could reach levels not seen since 2007, before crop price spike.

By Dan Grant

September 19, 2017

Large supplies of crops and livestock likely will weigh on commodity prices through this year and possibly into 2018.

That’s the outlook provided by Chris Hurt, Purdue University Extension ag economist, who advises farmers to “hunker down” in the wake of the latest USDA world supply and demand estimates report.

USDA this month raised ending stocks of corn to 2.335 billion bushels. Ending stocks of soybeans, 475 million bushels, and wheat, 933 million bushels, also came in above trade expectations.

“We’re in a supply-driven market right now,” Hurt told FarmWeek. “It gives concern for the financial position of farmers. Cash flows will be extremely tight again this year as it looks like the revenue situation will be a little weaker than last year.”

USDA projects farmers will harvest the largest soybean crop and third-largest corn crop on record this fall.

The Ag Department subsequently lowered its season average price projections by a dime for corn and beans (to ranges of $2.80 to $3.60 for corn and $8.35 to $10.05 for beans) and by 20 cents for wheat to a range of $4.30 to $4.90.

The ample supplies and lower prices for the feed crops should lower feed costs for livestock farmers. But livestock farmers, just as their crop-producing counterparts, face an issue with large supplies heading into 2018.

“For the livestock sector, we’re going to see around a 2 percent expansion of animal numbers in general,” Hurt said. “It looks like we could feed more corn than what’s in the current balance sheet.”

Livestock farmers should consider locking in feed prices later this month or in October. The soybean fall low often occurs around Columbus Day (Oct. 9) while December corn retested its low this week, Hurt noted.

But livestock production margins likely will tighten. The portion of meat available per person in the U.S. could reach 222 pounds by 2018, a level last seen in 2007 before crop prices spiked.

“We’re building animal production,” Hurt added. “It looks like margins will be narrow (for livestock farmers), even with low feed prices.”

The benefactor of the supply and price trends appears to be consumers as Hurt foresees limited food price inflation next year based on current production estimates.

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