A pair of reports from Department of Agriculture economists project a drop in American grain and oilseed production and overseas stocks on hand, prolonging a bump in commodity prices.

The forecasts — monthly Crop Production and World Agricultural Supply and Demand Estimates reports — also project decreased average yields on farms across the country.

The drop in corn ending stocks was perhaps the biggest decline in the report, a 465-million-bushel decrease to 1.7 billion bushels. If realized, that would be the lowest figure in that category since 2013, USDA noted. Soybean ending stocks were also cut by 100 million bushels to 190 million bushels, a figure on the low end of the trade range and which — if realized — would be the lowest level of the past seven years.

American Farm Bureau Federation Chief Economist John Newton said the report showed “everything analysts were expecting to happen.”

“You expect it, you never know if USDA is going to confirm it,” he added. “Folks were thinking this (corn) crop was going to start getting smaller, and we saw that.”

The projected yields for corn (175.8 bushels per acre) and soybeans (50.7) both came in below trade estimates, as did overall production figures for both commodities. Commodity markets rallied on the news, jumping double-digits across many corn, soybean, and wheat contracts. USDA left the season average wheat price unchanged at $4.70 per bushel but raised the corn price 40 cents to $4.00 per bushel and the soybean price 60 cents to $10.40 per bushel.

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The combination of less American production and smaller stocks on hand leads to the current market situation being a more demand-focused scenario, Newton noted, which shifts the focus to end-users and buyers of American products.

Specifically, the corn market will pay special attention to how ethanol use reacts — or doesn’t — in the wake of a resurgence of COVID-19 cases in the U.S. There are also overseas purchase commitments that haven’t been fulfilled and could have the potential to have an outsized impact on American markets.

“We need to see those outstanding export sales turn into actual shipments,” Newton said. “We need to see these exports remain strong, we don’t want to see any of these exports canceled and lead to the bottom falling out of this market.”

In other commodities:

• Rice: USDA left domestic use unchanged, but lowered supplies and exports while raising ending stocks. The all rice yield is now forecast at 7,560 pounds per acre, down seven pounds from the previous forecast.
• Cotton: Estimates for production, use, and ending stocks were largely unchanged from the previous report. USDA described its cotton production forecast as “marginally higher,” up to 17.1 million bales.
• Sugar: “Lower-than-expected imports from the 2019/20 raw sugar (tariff relief quota)” contributed to dropped beginning stocks, as did a decreased domestic supply.
• Livestock products: USDA raised total red meat and poultry production and reduced egg production while raising export forecasts.
  

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“Farm debt has been rising more rapidly over the last five years, increasing by 30% since 2013 – up from $315 billion to $409 billion, according to USDA data, and up from $385 billion in just the last year – to levels seen in the 1980s,” Perdue said in his testimony to the House Agriculture Committee.

Purdue told lawmakers: “Relatively firm land values have kept farmer debt-to-asset levels low by historical standards at 13.5%, and continued low-interest rates have kept the cost of borrowing relatively affordable.”

“But those average values mask areas of greater vulnerability,” he added.

The agricultural sector has experienced tremendous headwinds in the last five years amid deflationary trends in commodity prices, storms damaging crops, and more recent – supply chain disruptions into China due to President Donald Trump’s trade war.

“As producers are not able to cover year to year expenses with operating loans, they are forced into transforming operating loans into term debt which erodes their creditworthiness,” said Luis Ribera, an agricultural economist at Texas A&M University.

“On top of all that then we have the trade war which reduces the demand of US commodities given that tariffs make them more expensive and then depress the prices even more.”

US Department of Agriculture chief economist Robert Johansson said farm exports are expected to drop by as much as $1.9 billion this year, citing the deepening trade war.

China has been a significant buyer of corn, soybeans and other agricultural commodities for at least three decades, but since President Trump launched protectionist policies, Beijing responded by imposing tariffs on American agriculture products which caused trade between both countries to decline. While Beijing has promised to buy hundreds of billions of dollars in agricultural items, it has offered little relief to soybean farmers who are teetering on bankruptcy even with President Trump’s farm bailout money in hand. But as recent trade negotiations might result in an upcoming lasting agreement, it might not be enough to save hundreds of heavily indebted American farms from sliding into bankruptcy.

Perdue said land values have helped some farmers maintain a low debt-to-asset ratio of 13.5%. However, in the next recession, land values are expected to dip, which could trigger a deleveraging period for farmers on par with the 1980s farm crisis.

Source: https://www.zerohedge.com/news/2019-03-01/american-farm-debt-reaches-1980s-farm-crisis-levels-agriculture-secretary

The post American Farm Debt Reaches 1980s Crisis Levels: Agriculture Secretary first appeared on Garner Ted Armstrong Evangelistic Association.