After an eventful 2022, farmers are looking ahead to the new year and what it might bring. There are the usual uncertainties, but ag economists and commodities brokers say there are signs it could be another profitable year.
Scott Brown
University of Missouri Extension ag economist Scott Brown says he expects markets to continue an up-and-down pattern in 2023.“Number one, I don’t think volatility goes away anytime soon,” he says.Brown says 2022 ended up being a better profitability year for farmers than he expected when it began. He says the 2023 outlook carries a few concerns as input costs remain high, so a drop in prices would cut deeper into profits.“Maybe more downside risk to the outlook,” he says. “I think costs are going to stay higher. We continue to see dry weather be a pattern with feed costs.”On the positive side, demand has remained strong.“Consumer demand for a lot of ag products has been really, really good,” Brown says.However, he says the overall economic weakness and inflation could impact demand as the economy could be heading for a recession.“We’re still at high inflation levels,” Brown says. “As consumers begin to modify their purchases, does that hurt?”
Cory Bratland, with Kluis Commodity Advisors, speaks about grain markets at the 2022 Commodity Classic in New Orleans.
Cory Bratland is a chief grain strategist and commodities broker for Kluis Commodity Advisors. He says he is watching trends in South American weather and its crops to see what crop markets might do in 2023.“The thing that comes to mind, first and foremost, is the size of the South American crop,” he says. “The last two or three years, there has been a rally in beans because La Niña has been shaving off a few bushels down there.”Bratland says Argentina is on the dry side, although Brazil has been doing better, and the USDA is expecting 10 to 15% more bushels out of the region than a year ago.Beef cattle production is expected to decline in 2023, as widespread drought conditions forced many producers to sell off cows, and the percentage of females in feedlots rose.“USDA’s forecasting a nearly 2 billion pound decline in beef production relative to 2022 production,” Brown says.He says there are only three instances of beef production declines in the last 50 years. Taking out the 2004 decline caused by a BSF outbreak, the other two years, 1979 and 2014, both saw 20% higher fed cattle prices the next year. Brown expects to see the trend of higher cattle prices, but economic factors might mitigate the increase.“USDA’s calling for about an 8% increase,” he says. “I think they’re looking at a slowdown in the general economy. We probably don’t see 20%.”He adds that feedlots need profitability, and feed costs are higher.
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Brown says higher interest rates could slow down or stall out land values. On the consumer side, he says it is good to remember high interest rates affect their credit card payments and mortgage rates, which can by extension impact spending levels.While there is competition for export markets, Brown says the U.S. is in a good spot.“I think the U.S. is well positioned from a production standpoint to help grow and fill international markets,” he says. “I think other countries are having a tougher time with the higher input costs, and having a tougher regulatory environment.”Brown says a big part of the export outlook is what people expect to happen in China. He says they could relax some of their strict COVID-19 control policies, which could increase their demand and economic activity.Bratland says a major COVID-19 outbreak in China, and how they respond, could have a big impact on export demand.“That could be a pretty detrimental blow to the overall demand,” he says.Beef exports have been on a good run lately.“It’s amazing how much strength we’ve seen on the beef side,” Brown says.Bratland says soybean exports have been decent, but corn records have been chasing records.“Soybean exports have been pretty good,” he says. “The corn exports, we’re starting out at the second-best pace in the last 10 years.”He says competition from Brazil has cut into soybean exports to China.At home, soybean demand has been good.“Overall domestic demand on soybeans has been pretty good,” Bratland says.He says the avian flu concerns and outbreaks could impact domestic corn demand.For dairy producers, Brown says they are in a similar spot, facing high costs but also export opportunities.“I think that’s going to keep their cost side high,” he says of high feed costs. “I think milk prices aren’t going to be quite as high as 2022.”He says the U.S. dairy industry could see export growth as traditional competitors Australia and New Zealand are seeing contraction in their industry, and the European Union continues to struggle with port issues.Bratland says he expects input costs to remain high, but he says many farmers were able to lock in decent input costs this fall, and can still be profitable at these prices with average yields.He says marketing strategies can help farmers manage price risk. He suggests being 20 to 30% sold on corn and soybeans heading into spring planting. He says they usually see spring rallies, with opportunities to lock in decent prices, and then he recommends being 50 to 60% sold going into harvest.
Looking ahead to 2023, farmers could have some good pricing opportunities, but input costs remain high.
Photo by Benjamin Herrold
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