Will Farm Income Increase in 2018?
Waiting for the spring thaw, the farm sector outlook appears as gray as a winter day, with another year of big crops and low commodity prices on the horizon. “A lot of the same,” says USDA Chief Economist Robert Johansson. Although it’s not assured, sustained economic growth worldwide, particularly among Asian customers for U.S. ag exports, offers the best chance of sunny prospects for this year.
“Global GDP is looking a little better than last year,” says Johansson, which suggests rising demand for food and ag products. Even the rise in oil prices has an upside; it tends to pull up demand for agricultural commodities.
Just as there are factors that could boost farm income, others could deflate it. “I imagine it (income) would be pretty similar” to last year, when farm income stabilized after a three-year plunge, says the USDA economist, with a caveat familiar to any prudent forecaster. “Any given year, you don’t know what . . . is going to hit.”
The Kansas City Fed also expects relatively stable farm income. “Growing inventories and trade uncertainties remain key risks to the outlook,” says the regional Fed.
“Trade agreements can cut both ways,” says Johansson, using the example of NAFTA. Farmers would benefit if negotiators remove barriers to U.S. exports, or they would suffer if there is a setback to duty-free access to Canada and Mexico. He listed five other factors to watch: global economic growth, the Chinese market, weather shocks worldwide, energy prices, and the 2018 farm bill.
A rise in oil prices, while driving up farm production costs, has the ripple effect of making cotton a more popular fiber for apparel companies and boosting demand for biofuels. As gasoline prices go up, the higher blends of ethanol, E15 and E85, look like a thriftier choice to motorists.
This article was produced in collaboration with the Food & Environment Reporting Network, an independent, nonprofit news organization producing investigative reporting on food, agriculture, and environmental health.