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Three USDA Reports This Week Will Frame the Ag Sector Outlook

In back-to-back-to-back reports, USDA economists will paint a numerical picture of the U.S. farm sector this week, with estimates of farm income, ag exports, and the output, demand, and prices for 2018 crops. Most likely, they will add up to large crops, comparatively low grain prices, and constrained income heading into the fifth year since the collapse of the commodity boom.

Farmers are expected to plant more corn and wheat while trimming back on soybeans and cotton in 2018, with little overall change in total plantings of the four major U.S. crops despite lackluster prices, according to analysts and an early survey of grower intentions. Farmers sowed a record 90.2 million acres of soybeans this year, nearly matching corn’s 90.4 million acres, and resulting in the largest soybean supply in a decade. Corn, wheat, and soybeans have myriad food, feed, and industrial uses, are the foundation of the U.S. food supply and carry an attenuated impact on food prices.

On Tuesday, the USDA is scheduled to release its projections of production, consumption, and prices for major U.S. crops and livestock from 2018 through 2027. The projections assume normal weather and yields with no change in U.S. farm policy. The USDA says they are “a conditional long-run scenario” and are not estimates. All the same, traders regard the material as an early look into USDA’s thinking about 2018 crops, even if the medium- or long-term outlook is conjectural.

In late summer, the Food and Agricultural Policy Research Institute said it expected modest strengthening of season-average prices for the 2018 corn, wheat, and soybean crops compared to farmgate prices for this year’s harvest. “Large global supplies weigh on markets” and will limit the improvement in prices, said FAPRI. Prices are running well below their levels of a few years ago.

The USDA will update its farm income forecast on Wednesday, for the final time this year. In August, USDA said income was stabilizing after plunging in 2014 and 2015 and could increase slightly from 2016’s levels. Even so, income this year would be one half to three fourths of the record set at the peak of the commodity boom. The USDA will forecast 2018 farm income in February.

“Hopefully, the worst is over,” said Ohio State University economist Ani Katchova at an OSU conference early this month. “Financial conditions seem to be improving albeit slowly.” Gary Schnitkey, a University of Illinois economist, said in a blog last week that net income for many Illinois grain farmers will be better than expected this year although still lower than in 2016. “As a result, attention will be focused on lowering costs and other cash flows,” he said.

On Thursday, USDA will issue a quarterly update to its forecast of farm exports, the source of 20% of farm income. In its previous report, the USDA said fiscal 2018 exports would be marginally smaller than in fiscal 2017, which ended on September 30. Since then, the USDA has said its year-end tally of FY17 exports was slightly higher than expected. The total of $140.5 billion ended a two-year decline and was the third highest on record. The mark is $152.3 billion in fiscal 2014.

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