Farm income in the United States will continue to be challenged by a confluence of global economic factors – mounting supplies of grain and oilseeds, the U.S. dollar's continued strength and slowing growth in China – through the remainder of 2015 and into 2016, according to the new Quarterly Rural Economic Review from CoBank. With inventories growing, crop prices should stay near their current levels well into 2016, according to the report.
At the same time, those weak crop prices will continue to aid ethanol producers as well as the animal protein and dairy sectors. All three of these industries have suffered their own declining prices of late. Animal protein – beef, pork and poultry – supplies are all on the rise after several years of challenges brought on by drought, higher feed grain prices and disease. In fact, the animal protein complex is now growing per capita meat supplies at the fastest rate in nearly forty years.
"In the face of mounting supplies and downward pressure on prices, U.S. agricultural exports now occupy center stage across the board – for grains and oilseeds, ethanol, animal protein, and dairy," said Leonard Sahling, manager of CoBank's Knowledge Exchange Division, which produced the report. "The new pricing paradigm will accelerate the pace and scope of supply chain realignments, throughout the entire U.S. agricultural sector. Moreover, we're beginning to see an increased need for access to debt capital as margins narrow further and savings begin to dry up."
Water continues to be a challenge in California where a severe drought is now in its fourth year. Many Californians are convinced that El Nino will be their deliverance, unleashing torrential rains that will end the drought. However, even if an El Nino event does end California's drought, the state's water woes will probably still persist. California will need to get several years of heavier-than-normal annual rainfall just to restore the underground aquifers to the levels where they were prior to the onset of the current drought – much more rainfall than even an exceptionally strong El Nino event will deliver in a single year.