CoBank Warns U.S. Agricultural Industry Faces Formidable Global Challenges

Mounting global inventories, withering export demand and weak global economic growth, which caused U.S. farm income to plummet by 25 percent in 2015, will continue to plague the U.S. agricultural industry in 2016, according to the new Quarterly Rural Economic Review from CoBank.

U.S. farm income declined to $93 billion in 2015 after averaging more than $124 billion in the previous four years, which witnessed uncommonly strong commodity market growth. The 2015 farm income level is still 30 percent higher than the average farm net income from 2000 – 2009. A further, but modest decline is expected in 2016, according to the report.

CoBank’s Quarterly Rural Economic Review, which is produced by the bank’s Knowledge Exchange Division, provides insights and projections for the agribusiness, energy, water and communications industries in the U.S. and globally.

“Continued strength in the U.S. dollar and tepid economic growth in China and other emerging markets are the primary culprits for the current situation. Plus, the weaker currencies in competing agricultural countries like Russia, Ukraine, Brazil, Argentina, and Canada are signaling to farmers there to expand acreage and boost production,” said Leonard Sahling, vice president in CoBank’s Knowledge Exchange Division.

“Unless weather changes temper that expansion, we expect the market for grains and oilseeds – which are already fiercely competitive – to become even more aggressive in the year ahead.”

CoBank expects the U.S. economy to continue growing in the 2 to 2.5 percent range in 2016, extending the trend established over the past five years. Consumer spending will drive domestic economic growth, but business investment will likely remain subdued at least through the presidential election.

The strong dollar will continue to hamper U.S. exports and exert downward pressure on commodities prices. Meat prices should also decline in response to what are expected to be record animal protein production levels. Dairy prices have not hit bottom and will continue to decline for the foreseeable future.

Outside of the U.S, the global economic environment remains fragile, with growth struggling to reach 3 percent. China will continue to grow at a relatively disappointing 6 – 7 rate with mixed results in both emerging and established economies.

CoBank’s Knowledge Exchange Division is a knowledge-sharing practice that provides strategic insights regarding the key industries served by CoBank. Knowledge Exchange draws upon the internal expertise of CoBank, deep knowledge within the Farm Credit System and boots-on-the-ground intelligence from customers and other stakeholders to enhance the collective understanding of emerging business opportunities and risks.

Source: Agri Marketing

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