A lot is going on in agriculture right now! There is a very wet Corn Belt that could lead to some planting delays and, a lot of snow melt to add to the already swollen lakes, rivers and streams. If that is not enough, two epic blizzards in 30 days, a massive Polar Vortex and one of the coldest winters on record haven’t done any favors for livestock producers this year. Last but not least, what would an article be in this day and age with talking about China and trade wars. With all of these factors in play, what does it mean to the equipment industry?
In 2013 and 2014, I was having a conversation with other dealers across the U.S. about the downturn we were heading into and what they were going to do differently. The interview usually ended with “how long do you think this one will last?” For the most part, we all thought by 2019-21 we would see the equipment market stabilize and begin the long, arduous journey back up. I think we can all agree that the equipment market has maintained values for the last 18 months and there are definite signs of good used equipment demand. The last big hurdle is on-farm income. It’s still a struggle for producers to make a profit and every efficiency and input matters. For the last 2-3 years, I believed 2019 would be the turning point for the ag market, and I think we are starting to see just that.
I see three factors giving the U.S. market the boost needed to get it over the hump. First, a trade deal with China will put certainty back into the market. An agreement with China will insert confidence into markets. More than likely, the agreement will have billions of dollars of U.S. ag products involved that will increase the value of U.S. commodities for the year to come. I am confident this will happen in June or July of 2019. The biggest reason is the political ramifications the Trump Administrations and Republicans will face heading into 2020 if this doesn’t happen.
Secondly, the African Swine Fever (ASF) is a double edge sword. On the positive side, China has openly discussed that 40% of their hog herd has been decimated by ASF. If China were able to buy every pig on the export market, they could replace less than half of their herd. On the flip side of ASF, the bulk of soybeans China buys every year go directly to feed hogs. That being said, China will need at least 40% fewer soybeans than in years past. I am interested to see how this play out in the markets.
Fewer hogs will open doors to other sources of protein. U.S. beef has not had a long history of support in China, but year-to-date beef exports to China are up almost four times compared to this time last year. With rising cattle prices, this will also have a significant effect on the dairy market. As dairy producers actively reduce their herds, rising cattle prices will send more dairy cows to slaughter for profit. Decreasing dairy herds will bring the cost of Class III milk up and put more dairy producers in the black.
Lastly, the weather is going to affect planted acres. I have read 700,000 – 1,000,000 acres will go to prevent plant and upward of 7,000,000 acres of corn could be switched to something else, most likely soybeans. With OPEC stating they want crude oil at $70+ per barrel and EPA expected to sign off on a mandatory year-round E-15 fuel mandate, ethanol will have increased demand and will help support an increase in the price of corn.
So what does all of this mean? 2019 will be the year we look back and say, “This was the year things turned for the better.” From what I have read and listened to, there could be $4.50 - $4.75 corn by September or October. If this happens, producers will buy equipment. Used equipment values will increase because, like 2010, new production will lag due to ramp up and 2020 new early orders will spike leaving late model, low hour used equipment as the only choice to fill the void. I have a very positive and bullish look toward the end of 2019 and beginning of 2020.
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