2016 Held Many Challenges for County Agricultural Producers
Posted: January 17, 2017
Prices of corn, soybeans, pork, chicken, beef and milk reached a high some years ago and have been sliding in price for 12-24 months, depending on the commodity. In fact, average prices of all farm products in 2016 were down about 40% from the record prices of 2013-2014. There were many factors that came together to cause this slump in prices, but the main reason was abundant supplies of food both domestically and internationally. These persistent low prices over the past two years have put great stress on farm cash flow and balance sheets. Most farmers have used their cash, and extended their credit lines to operate their farms through these low prices. Dairy farms in Pennsylvania with average production and management will lose an estimated $250-300/cow in 2016. Deferred maintenance and limited new investment were additional strategies that farmers used to manage through this difficult price environment. On top of the challenge of low prices, the farmers in our county and in this part of the state suffered from an extended dry period which affected the quality and quantity of crops harvested. It is no wonder that farmers were glad to say goodbye to 2016!
What will 2017 hold for our county farm operations? Futures markets for farm commodities are predicting some improved prices, especially for the second half of the year. At this point, the price improvements will not allow farms to recover from the liquidity lost during 2015-2016, but will at least stem red ink on most of our farms. Global supplies of food commodities are coming back in line with production, so there will be more opportunity for exporting a greater percentage of our production to the world market.
However, some producers have managed their farm operations to make a profit, even with the lower price levels of the last two years. Most often, these farms are located in states where costs for land, feed and facilities are lower. This year, Texas and Michigan overtook Pennsylvania in the total amount of milk produced. In fact, Texas increased its production over 10% in one year. Pennsylvania now ranks 7th in milk production among all the states. Two decades ago, Pennsylvania was ranked 4th in milk production among the states, so that speaks to the aggressive growth in the dairy industry in some states, while Pennsylvania’s dairy industry has remained fairly stagnant in total production.
The supply of meat from American farms is expected to increase in 2017. The beef supply is expected to increase 4%, pork 1% and chicken 5%. In the past year, Perry County and surrounding counties have seen new construction of broiler, turkey, hog and layer barns. Although the price of milk is expected to rise, the price of soybeans and soybean meal also continues to rise. This is somewhat surprising, given the tremendous back to back record crops of soybeans that America has produced. But, the world demand for plant protein and oil in the form of soybean oil and soybean meal continues to keep a strong floor under the price. Farms in Pennsylvania raising livestock or dairy cows use soybean meal as a source of protein for their animals, and the rising prices of soybean meal are keeping pace with the predicted slow rise in milk prices.
America has also produced back to back record crops of corn, and our country has a large supply of corn in inventory, so very little price movement is expected for corn. Futures markets predict corn to be in the $3.50/bu range through the summer. There are also very large stocks of wheat on inventory, so very little increase in the price of wheat is expected. Because of these price forecasts, farmers across America intend to plant more soybean acres than ever before in 2017.
Overall, the year ahead will allow well managed farms to make a profit and potentially start to recover from the sustained low prices of 2015-2016. Because there is little movement predicted in grain prices, farmers who sell grains as their principle farm product will need to watch input costs very carefully in order to make a profit in 2017.