UK Ag Economists Discuss Agricultural Economic Outlook for Kentucky

LOUISVILLE, Ky. (Nov. 29, 2018) — Buoyed by gains in the poultry and equine industries, Kentucky agricultural cash receipts are predicted to hold steady to 2017 levels, but 2018 net cash income will likely dip.

Agricultural economists from the University of Kentucky College of Agriculture, Food and Environment are projecting 2018 farm cash receipts to be $5.7 billion, equaling last year’s level.

“Kentucky farm income has held up better than national trends over the past several years given our mix and diversity of agriculture and above-average grain crop yields,” said Will Snell, UK agricultural economist. “For 2019, we expect Kentucky agriculture cash receipts to hold steady with continued strength in the equine and poultry markets offsetting anticipated losses for soybeans, tobacco and cattle. Trade developments and weather will ultimately dictate the 2019 market.”

UK agricultural economists estimate Kentucky’s net cash income to total around $1.8 billion, which is nearly 10 percent lower than last year due to higher production costs and a reduction in government payments.

“The prolonged period of low commodity prices coupled with higher expenses is resulting in cash flow and liquidity challenges. These could be made worse for some producers this year because of lower soybean yields and quality, resulting from a very wet harvest period,” said Jerry Pierce, program coordinator for the Kentucky Farm Business Management Program. “This is prompting producers to either cut into their equity or increase operating loan debt. Both management decisions reduce farm equity and weaken repayment ability.”

Poultry will likely remain the state’s top agricultural commodity, comprising 21 percent of projected 2018 sales. Equine, soybeans, cattle and corn are expected to follow.

The equine industry continues to grow, and 2018 receipts should exceed $1 billion. The Keeneland September Yearling Sale was up more than 20 percent from 2017.

“A relatively strong economy and another Triple Crown winner likely supported both sales and stud fees for 2018, which I expect to be up by 10 percent,” said Kenny Burdine, UK agricultural economist. “It is likely that this strength will continue into 2019.”

A strong economy and exports helped the cattle market remain relatively stable in 2018. Calf prices are roughly $8 more per hundredweight than they were in 2017. Burdine expects an increase in beef cattle numbers to result in lower prices in 2019.

“Producers should look for  seasonal price increases during the spring, but expect prices by fall 2019 to be below this year’s levels,” Burdine said.

Dairy production remains challenging for Kentucky producers and is projected to be down 15 percent on the year. Dairy cow numbers declined in 2018 as producers faced unfavorable margins and some producers lost contracts with Dean Foods. In 2018, milk prices declined more than $1.50 per hundredweight from 2017. Economists expect prices to improve slightly in 2019, but margins will remain challenging.

In 2018, U.S. soybean and corn acreage decreased by about 1 million acres each, but record yields continued to result in large crops. In Kentucky, record yields are expected to result in a 7 percent increase in soybean receipts in 2018, despite trade concerns. Domestic and international use of corn was up by 17 percent in 2018 and reduced U.S. stocks. Corn prices increased 24 cents per bushel in 2018 from 2017.

“The U.S. Department of Agriculture forecasts that corn will be more profitable than soybeans in 2019 due to strong domestic demand and exports for corn,” said Todd Davis, UK agricultural economist. “USDA forecasts corn area to increase by 2.8 million acres in 2019. Soybeans are expected to have the largest quantity of stocks in history for the 2018-2019 marketing year, which will reduce prices and potentially shift 6.6 million acres out of soybeans in 2019.”

Slumping demand and an extremely poor growing season resulted in a significantly lower yielding burley crop. The value of Kentucky tobacco production may struggle to reach $300 million in 2018, which is $60 million less than the state average over the past 10 years. Dark tobacco may comprise nearly half of the value of the state’s tobacco crop this marketing year compared to only averaging about 7 percent in the 1990s. E-cigarettes and vaping products, which contain virtually no U.S. tobacco content, continue to take market shares away from traditional tobacco products. The tumbling burley demand and slowing growth in snuff sales will likely result in a reduction in contract volume for both burley and dark tobaccos in 2019.

Mostly favorable growing conditions for produce gave fruit and vegetable growers an opportunity to expand their markets beyond the state’s borders. In 2018, Kentucky sales reached $48 million, which was slightly lower than 2017. Farmers markets and other direct-to-consumer sales comprised nearly half of total receipts.

“Kentucky fruit and vegetable producers were able to capitalize on market shortages in 2017, but prices have since returned to regional averages. This is why incomes slightly decreased this year,” said Tim Woods, UK agricultural economist. “Consumer spending increased sharply in 2018 but is expected to drop in 2019.”

The forestry market remained stable in 2018 and contributed $13.2 billion to Kentucky’s economy. Prices for white oak stave logs, used to make barrels, and railway tie logs are up and projected to continue their upward trend in 2019. Declines in housing starts will likely lower the demand for oak, hickory and yellow-poplar in 2019. Rapid log exports to China flattened in 2018, which decreased demand for black walnut, oak and ash in the third and fourth quarters.

“Downward pressure on log prices for red oak and ash due to tariffs and the sluggishness of China’s economy have been countered by wet weather, keeping log inventories low and prices stabilized. It will be early spring before we see which of these countering forces prevail,” said Jeff Stringer, chair and professor in the UK Department of Forestry and Natural Resources.

The national agriculture economy continues to struggle. In August, the USDA projected net farm income to total $65.7 billion in 2018, which is a 13 percent decline from 2017 levels and, when adjusted for inflation, the second lowest since 2002. The USDA will update its 2018 forecast on Nov. 30, which will reflect changes in prices and yields since August, along with the portion of government trade assistance programs paid in 2018.

During the 2018 fiscal year, U.S. agricultural exports increased 2 percent with corn and meat exports both increasing and helping to offset fewer soybean exports. Canada replaced China as the leading destination for U.S. agriculture exports. In 2019, export growth is expected to stall because of a slowing global economy and anticipated higher U.S. dollar, but will depend greatly on trade policy outcomes.

Without a major supply shock, prices for most agricultural commodities will likely remain relatively low in 2019 in response to abundant global grain supplies, growing meat supplies and uncertain trade environment.

For the entire outlook, visit the UK Department of Agricultural Economics website at http://www.uky.edu/ag/agecon/pubs/ext2018-19_Outlook32.pdf.