USDA Projection Into 2028 Don’t Include Farmer Resilience

American Thanksgiving is something I always get to celebrate. It just so happens I have an American sister in law and that has translated into many years of not only watching the Detroit Lions in the afternoon but being invited over to celebrate with all my American friends to the south. Most of the day, I’ve noticed many of my American friends on social media telling everybody how thankful they are. Like our Canadian Thanksgiving in October, it is such a joyful holiday.

That joy was translated this past week as we had a settlement between CN Rail and the Teamsters Union, which meant propane was set to be delivered. The relief was palpable across farm country, as farmers were starting up dryers again all over Ontario and Quebec. Wet corn will only keep so long in a bin and the settlement came at a critical time.

Of course, next week is the first week of December and with crop still being harvested in Ontario and Quebec it doesn’t seem like we should change gears. However, as December grows older, it’s only natural to look ahead vs looking back. It was quite a year 2019, lots of frustration and here we are. Nearby corn futures are $3.62 and soybean futures area $8.82. That’s nothing to write home about and surely producers want more. The question is, are better days ahead? What will 2020 look like and can we legitimately hope for better times ahead.

As many of you know, sometimes I think I still farm and write with the 1980s cloud above my head. In other words, I hate putting my biases about farming onto other people who are younger than me. This upcoming weekend I’m speaking to the Farm Credit Canada Young Farmers Forum in Corbyville Ontario. It’s my job to talk about the economy and grain markets. However, at the end of the day, I suppose my job really should be to give these young farmers under 40 some hope.

I don’t know if I’ll be good at that, because I recently read the projections from USDA into the year 2028. I realize not everybody enjoys reading agricultural economic journals like I do, but it was telling. It also wasn’t that optimistic about prices. Needless to say, for those farmers I’ll be speaking to who are under 40, they will be farming in this environment. It’s interesting to see what the USDA said.

Take US ethanol for example, the following is a direct quote from what USDA thinks about US ethanol into 2028.

Almost all U.S. production of ethanol uses corn as a feedstock. Ethanol production is projected to increase in the initial years of the projection period with domestic use and exports rising, afterwards declining through the rest of the decade with moderate export growth not fully offsetting falling domestic use, and imports remaining mostly flat. Despite an anticipated decline in U.S. ethanol production, demand for corn to produce ethanol continues to have a strong presence in the sector, accounting for at least one-third of total U.S. corn use. (USDA Projections to 2028)
Projected declines in overall gasoline consumption in the United States and the 10-percent ethanol “blend wall” are assumed to constrain domestic ethanol use over the next decade. Most gasoline in the United States continues to be a 10-percent ethanol blend (E10). Infrastructure and other constraints severely limit growth in the E15 (15-percent ethanol blend) market. The E85 (51 to 85-percent ethanol blend) market remains small. (USDA Projections to 2028)
Its interesting stuff for sure and not very optimistic for farmers. Essentially, ethanol is tapped out for future growth. When you take in the special hardship wavers given ethanol refiners now in 2019, it doesn’t project the best type of future.

The USDA report similar things about crop prices, saying that they will stay relatively low within a trade environment where the Chinese tariffs on American soybeans stay until 2028. That was a showstopper for me. USDA was actually assuming that those Chinese tariffs would last until 2028. The only other assumption I could make was it was just easier to make that assumption. Agricultural economists love doing that.

None of this is very optimistic, but it does bode well for feed costs. USDA says that this gives good incentive for expansion in the livestock sector. This is despite the fact, that nominal prices for beef cattle and broilers declines through most of the decade into 2028.

It’s a pretty pessimistic projection from USDA especially in a trade environment that isn’t good now and is projected to stay the same. However, there is little in the report about farmers psyche. I’m already planning my crop plan for next year. The USDA doesn’t project the weather and we all know how much of a wild card that can be. I’ve seen much of this before. Can you imagine the USDA projections in the 1980s? Let’s just say the future is bright for agriculture. It just might take some extra digging to get there. Happy American Thanksgiving.