The best way to begin a new year is to start with what we know.
For example, we know the U.S. Department of Agriculture’s (USDA) December World Agriculture Supply and Demand Estimate shows that about 14 per cent of the 2019 U.S. corn and soybean crops will be unsold when the 2020 harvest begins next fall.
While neither amount is historically large, each is likely large enough to keep the lid on both markets through then, guesses USDA.
We also know that last year’s awful U.S. spring planting weather dropped soybean plantings from 91 million acres in 2018 to 76.5 million acres in 2019. Given low U.S. prices and forecasted record Brazilian soy production, will U.S. farmers hold 2020 soybean acreage down again?
No one knows.
We do know, however, that today’s U.S. revenue (we misname it crop) insurance program will be the key deciding factor. In fact, the big looming market question now is, “Which crop, corn or soybeans, will deliver the best revenue insurance payout in 2020 given the bleak price outlook?”
And, ironically, we also know that some major unknowns could make 2020 a better year than it currently appears. Either of two prominent unknowns — another round of unforeseen government payments like 2019’s trade mitigation payments or a return to trade normalcy — could do the trick.
Together, though, the combined impact would be a huge game changer. In 2019, for example, the massive trade mitigation payments alone added 24 per cent, or US$22.5 billion to the year’s forecasted net farm income of US$92.4 billion.
Right now, both hopes look forlorn.
First, while China and the U.S. have a “Phase 1” deal in principle, neither has yet to reveal, let alone sign, a detailed written deal to end their bitter, 18-month-old tariff war. That troubling fact only adds to current speculation that the amount of purchases the White House claims China will make in each of the next two years are unbelievable.
Second, almost every analysis of USMCA shows that any gain in U.S. ag exports to both Canada and Mexico will be so modest that it likely will be unnoticeable. A 2019 International Trade Commission (ITC) report claims USMCA, when fully implemented a decade from now, will deliver US$435 million, or just one per cent more, in U.S. ag exports than NAFTA.
Worse, that tiny increase shrinks even more when you subtract the expected boost of US$80 million in U.S. ag imports under USMCA. After that, the net increase, $335 million, becomes less than rounding error.
In November, USDA predicted Canada’s 2020 per capita gross domestic product (GDP) will increase a paltry 0.4 per cent while Mexico’s GDP likely will be flat after shrinking 0.8 per cent in 2019.
The USMCA upshot is that neither will be a bigger buyer next year or in the next decade.
Oh, and we know one more thing: 2020 is a presidential election year. That means, given today’s erratic, parochial politics, everything we know today could be absolutely meaningless by tomorrow morning.
And that means that 2019’s challenges were just a warm-up act for what appears to be an even more challenging 2020.
The Farm & Food File is published weekly in newspapers throughout Canada and the U.S.