Top 10 Ag News Stories of 2018: 4, 3, 2 Beef Traceability, Lower Farm Incomes, and Big Crops Keep Co
OMAHA (DTN) -- Each year, DTN publishes our choices for the top 10 ag news stories of the year, as selected by DTN analysts, editors and reporters. We continue counting down with No. 4 being the much-debated issue of traceability for U.S. beef, No. 3 is faltering farm incomes -- yet the farmers have high optimism -- and No. 2 is how the sixth consecutive year of good enough weather pushed the 2018 U.S. corn yield to a new record-high 178.9 bushels per acre, producing a 14.6-billion-bushel crop and a fourth consecutive year of sub-$4.00 cash corn prices.
No. 4: Pivotal Period for Beef Traceability
The U.S. beef industry is in a pivotal period of history with regard to animal traceability, ranging from new marketing initiatives to USDA issuing a large fine to JBS USA Food Co. for a lack of traceability.
BIRMINGHAM, Ala. (DTN) -- USDA recently fined JBS USA Food Co. $50,000 for failing to pay producers the full value of beef carcasses processed at the company's Grand Island, Nebraska, plant. One of the reasons the company was cited was a lack of traceability within its own system.
As 2018 ended, this served as another example of how the U.S. beef industry is in a pivotal period of history with regard to animal traceability. The issue will only gain in urgency as we move into 2019.
Traceability has reached the point where its absence is a non-starter in a growing number of market negotiations. Regardless of how good genetics are in the U.S. beef herd, or how wonderful the end product, the industry may find itself backsliding in the global marketplace, falling behind those willing to sell an animal, backstory and all.
Some U.S. producers are using consumer-direct sales or branded programs to bridge the divide between themselves and buyers. It's traceability at its most basic level. The goal is for the consumer to know where his or her beef came from and how it was raised -- and for both parties to realize a benefit through that exchange.
Louisiana's David King started a branded program called Kingsland Ranch Beef. He placed about 70% of his calf crop into the program in 2018, and reported a 30% premium on those calves -- compared to the ones he took to the sale barn.
"I really believe there is an untapped demand for this kind of beef," he said. "Consumers want to know where the meat they are buying comes from. If it's local beef and it carries your name, that's your reputation on the line."
Programs like King's are taking advantage of a market dynamic that has been building for several years. Don Close, Rabobank protein analyst, said the beef industry is in a strong demand environment, which when combined with the quality and food safety for which U.S. producers are known, will create additional sales opportunities.
"North America is collectively the single source globally for quality and ultra-high-quality product. Supply of Choice and Prime cattle here is over 80%. Consumers want, are demanding to know, where their food came from," said Close. "That is not going to go away, it will only intensify. Beef's ability to deliver that story, that confirmation, that the product is what it is labeled to be, will only be accomplished with full traceability."
Canadian beef producers who tagged cattle and participated in a program geared toward providing a source of sustainably produced beef to McDonald's and other restaurants in that country saw bonuses ranging from $10 to $20 per head through the first three quarters of 2018. If nothing else, this showed that at the buyer level there is money to back up calls for traceability and sustainability.
There was positive movement in the U.S. regarding traceability in 2018. Kansas took a strong leadership position with Cattle Trace, a partnership between public and private entities to develop a traceability infrastructure that can be used as a national model. USDA continued to refine its Animal Disease Traceability (ADT) program, and an increasing number of leaders in the cattle industry stepped up to talk about electronic identification as a path to national traceability.
A lot remains to be worked out. But there is a price to be paid for not moving forward quickly. That price, whether it relates to lost markets or a health emergency, could be huge, and it could happen in the blink of an eye.
No. 3: Farmers Have Faltering Farm Incomes, But Still Rising Optimism
USDA expects net farm income to decline 12% from last year to $66.3 billion in 2018. But farm financials are highly variable, and whether farmers made or lost money in 2018, DTN/The Progressive Farmer Agriculture Confidence Index survey highlighted an apparent contradiction to the doom-and-gloom story of USDA's farm income forecasts: rising optimism.
MOUNT JULIET, Tenn. (DTN) -- Low prices, rising costs and faltering farm incomes made for another tough financial year for farmers. USDA expects net farm income to decline 12% from last year to $66.3 billion.
After adjusting for inflation, this is still 3.3% above 2016, which was the lowest income year since 2002.
USDA estimates input prices increased by 4.2%, with fuel, feed and interest costs taking a larger bite out of farmers' profit margins.
But there were a few things that kept the decline in incomes from being even worse.
Cash receipts for crops are likely to be 3% higher than last year as record corn and soybean yields help compensate for stubbornly low commodity prices. On the livestock side, lower receipts for milk and meat animals more than offset higher receipts from poultry and egg producers, with total animal and animal product cash receipts declining by about $413 million compared to last year.
Government payments are helping the bottom line as well, contributing $13.6 billion to farm incomes. These payments include Market Facilitation Program payments, but it's not clear if USDA included the second round of payments authorized in December in its analysis.
What's important to remember is that USDA's data provides a general picture. Farmers have spent the last five years adapting to the lower-income environment. Some made good money in 2018. Farmers that aggressively forward contracted their soybeans last spring locked in high enough prices to make a tidy profit. Others have focused on efficiencies in recent years and spent less on their inputs. Some diversified into growing seed, non-GMO soybeans or other crops to spread their risk around. But others relied more on off-farm income to pay the bills.
Farm financials are highly variable, and whether farmers made or lost money in 2018, the DTN/The Progressive Farmer Agriculture Confidence Index survey highlighted an apparent contradiction to the doom-and-gloom story of USDA's farm income forecasts: rising optimism.
By nature, farmers are optimists. Some say they have to be to continue putting a crop in the ground every year despite all the variables out of their control.
But something changed with the 2016 election. Discussions with respondents to the Agriculture Confidence Index survey found the promise of a more relaxed regulatory environment eased numerous business worries. While dicamba drift gained a lot of negative news coverage, farmers reported some of the cleanest fields in decades. Crop insurance emerged from the farm bill process unscathed. Farmland values held up despite stiff pressures from commodity prices.
And while the trade dispute with China took more than $2 per bushel off the price of soybeans in the spring, many farmers support the long-run view that forcing China to change its intellectual property practices will pay dividends. Trade tensions with China appear to be thawing, and as 2018 draws to a close, the possibility of a broader resumption of trade is breathing hope into the idea that maybe, just maybe, 2019 will be a better year.
No. 2: The Big Crops Keep Coming
A sixth consecutive year of good enough weather kept a lid on 2018 grain and oilseed prices.
OMAHA (DTN) -- I remember trying to explain to my son some years ago how farming works. You see, you pray for favorable soil temperatures and moist, but not muddy fields in the spring, early enough to get your crops planted before crop insurance deadlines and to avoid crops pollinating in the summer heat. Then you pray that they'll get just the right amount of rain through the season, especially at pollination or pod-filling time. You have to have plenty of good, warm sunshine for crop growth, but you don't want temperatures to stay too high overnight.
Cross your fingers to escape wind and hail damage -- you don't want crops on the ground before harvest. If you have any wishes left, include a few words about not wanting too early of a frost or too much rain at harvest time.
Should you be fortunate enough to make it past all those lurking traps, you'll be rewarded with so much harvest that you won't know where to put it all, and you won't be able to sell it because prices will be too low to pay for all the work you did.
Shut the door on winter and do it again next year.
I apologize if the above description hits too close to home, but that is where many find themselves again at the end of 2018. Six consecutive years of good or good enough weather and seed technology pushed the 2018 U.S. corn yield to a new record-high 178.9 bushels per acre, producing a 14.6-billion-bushel crop and a fourth consecutive year of sub-$4.00 cash corn prices.
In recent years, soybeans have struggled more than corn to attain above-trend yields, while the underlying trend has been increasing roughly a half-bushel per year. However, 2018 also saw soybeans experience their sixth year of favorable weather in both the U.S. and Brazil, and you may have heard something about a trade war with China.
Fall harvest was unusually wet in several areas around the Midwest this year, and there is a chance that USDA will reduce its 4.60 bb harvest estimate on Jan. 11. Even so, the combination of good weather, super seed and a big drop in demand from China has the U.S. looking at the possibility of a billion bushels or more of soybeans at the end of 2018-19 for the first time on record.
Not surprisingly, cash soybean prices fell to their lowest level in 11 years in September as pictures on Twitter showed large piles of soybeans popping up around the Midwest.
There are many things on a farm that a producer tries to control to the best of his/her ability each year to get the best crops possible, but weather is not one of them. Until this "fortunate" streak of good weather is challenged, we'll likely see more years like 2018 repeated.