The Association of Equipment Manufacturers (AEM) December report of U.S. Tractor and Combine Sales...
For agriculture, 2021 has revealed several risks and uncertainties, but 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, farm 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. The change in cash receipts has been most abundant in corn, soybeans, and hogs. Wheat, cattle & calves, and broilers are also higher.
Record Early Corn Export Sales
September marked 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 years, early corn export sales – sales reported before the new marketing year began – exceeded 900 million bushels, which is 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.
China Keeps Buying
The Ag Forecast Network asked a 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 of total 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. Purchases are very seasonal, especially for soybeans, so great uncertainty remains, but the pace through August suggested China's annual purchases may exceed $33 billion in 2021.
China’s Cumulative Total Ag & Related Purchases, 2016-2021. Data Source: USDA
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 estate 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.
Annual Change in Cropland Values (2021 versus 2020). Data Source: USDA’s NASS and aei.ag calculations
Outlook for 2022 Still Remains Profitable
The conversation about 2022 will be dominated by higher input costs, lower commodity prices and 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 for farmers to update or review budgets and projects for next year.
Wrapping it Up
The farm economy is certainly in a better place than it was from 2016 through mid-2020. A few years ago, producers faced tough budget outlooks with few good choices. Today, the outlook is very favorable.
EDITOR’S TAKE:
Maybe 2022 will not be quite as robust as 2021, but as the article points out – the outlook is “very favorable”! I’ll take that as a great signal that 2022 will be another successful year for farmers/ranchers in the U.S. That said, it also implies that they will once again have money to spend and taxes to lower. That simply means that it will be another very good year for truck sales. If you are not familiar with the farmers in your area now is a great time to start reaching out to them. Let them know you are a CAD member and offer AgPack. They will appreciate the effort and you will see the rewards when they stop by to purchase that new truck and take advantage of AgPack!
