Will Secor, Grain and Farm Supply economist for CoBank Knowledge Exchange, is concerned about the US agronomy and farm supplier outlook for the rest of the year.
Last year’s poor fall weather, this year’s wet spring with regionally catastrophic floods and stressed farm balance sheets weigh on the outlook for those supplying farmers with the materials needed to grow crops, Secor said in a white paper this month.
In addition, suppliers’ margins will be put to the test in a compressed spring planting season, beset with bad weather on top of last fall’s bad weather, he said.
Putting more fuel to the fire are rising accounts receivables linked to an estimated 10% drop in farm income last year, Secor said. While the USDA predicts more farmer income in 2019, this will not come until the end of the growing season, leaving many farmers cash-strapped for the current planting season.
All of that means a greater potential for acreage shifts, possibly toward corn, which, along with a probable increase in fertilizer sales, could be a couple of bright spots for those supplying farmers with inputs, he said. Corn requires greater inputs than wheat or soybeans.
However, that potential shift to more corn acreage hinges on good spring weather, Secor said.
TOP THREE DRIVERS
Secor expanded his reasoning behind the three top drivers in the market for farm suppliers: bad weather, stressed farm financials and expected fertilizer price increases.
Bad weather: Flooding in the western Corn Belt and the Northern Plains, along with significant snow cover in the Northern Plains have kept many farmers and applicators out of the fields this spring, he said. This comes after fall’s wet weather that prevented many from accomplishing the typical fall fieldwork, pushing much of it into spring.
However, the current state of affairs in significant parts of the Midwest makes that extremely difficult.
Farmers may elect to change fertilizer types, like applying urea or liquid nitrogen this spring instead of anhydrous ammonia last fall, could put suppliers in a bind to supply what is needed on short notice, he said.
Stressed financials: The USDA estimated a significant decline in farm incomes last year, and while this could turn upward this year (assuming good growing weather) it won’t come until later.
Farm finances have been buoyed by large yields and Market Facilitation Program payments, which have kept many farm economy issues at bay for another year, Secor said. But weak financials are delaying farmer decisions, increasing accounts receivable risk and constrained fertilizer volume and seed choices.
Fertilizer price increase: Fertilizer prices were expected to rise as spring applications kick into high gear, he said. This could provide a good margin opportunity for ag retailers who purchased product before the runup last fall.
Additionally, those who locked in prices on prepays back-to-back sales also could maintain a good margin.
However, higher fertilizer prices may push some farmers to pull back on purchases and could reduce overall sales.
CATTLE, BEEF RECAP
Some cash cattle trading was reported at $124 per cwt on a live basis, down $1 to $2 from last week. Dressed-basis sales were even lighter at $200 to $205 per cwt, down $2 to $6.
The USDA choice cutout Thursday was up $0.60 per cwt at $226.74, while select was down $0.61 at $218.36. The choice/select spread widened to $8.38 from $7.17 with 84 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Wednesday, was $142.88 per cwt, up $0.44. This compares with Thursday’s Apr contract settlement of $146.32, up $1.57.