A 30,000-foot view of the agricultural economy might offer a broad perspective, but according to USDA Chief Economist Seth Meyer, it often “hides too much.” In a recent discussion with NAFB Broadcasters, Meyer emphasized the need to delve deeper into the numbers to understand the complex realities facing American farmers.
“Part of the problem that I see is when you take, like, some of our own USDA farm income measures, and you pull away from that number, you then you start saying, hey, a fairly big chunk of that change year-to-year is government economic and disaster assistance provided for events of previous years,” Meyer explained. He noted that without such assistance, “farm income would be flat year-over-year.”
The picture becomes even more nuanced when distinguishing between crop and livestock sectors. “Obviously, row crop margins are really narrow. I mean, the profitability is very poor on the crop side and on the livestock side, it’s much better,” Meyer stated. However, he quickly cautioned that even the seemingly robust livestock sector faces its own set of challenges.
Livestock: Record Prices, Underlying Concerns
While feeder and fat cattle prices have hit record highs, Meyer is skeptical about the sustainability of these levels. “I think even folks making money now don’t think this is a sustainable outcome,” he remarked. The dairy sector, too, faces constraints, with “purebred dairy heifers in short supply, in part because of the beef side.”
The decision for cow-calf operators is particularly complex. “Do I take the cash now, or do I retain that heifer and hope that I’ll make that money two years from now on a fed-out animal?” Meyer said that many operators are “hesitant to expand.” This contributes to the current contraction phase in the cattle industry.
Meyer eagerly anticipates the upcoming July cattle report from USDA’s National Agricultural Statistics Service (NASS). “I’m happy to say my NASS colleagues have given me back my cattle report for July,” he said, expressing a keen interest in whether the report will indicate a turn in the contraction cycle. The percentage of heifers on feed, currently at 37.6%, is a key indicator. Meyer suggests that a drop below 37% in the next quarterly update could signal the beginning of heifer retention.
Trade Tariffs and the Farm Bill: Lingering Impacts
The ongoing discussion around trade tariffs and their impact on farm income remains a significant concern. Meyer confirmed that the USDA has already incorporated expected market effects of tariffs into the WASDE (World Agricultural Supply and Demand Estimates) report, which is updated regularly.
The prolonged period without an updated Farm Bill also poses challenges for producers. Meyer highlighted the “erosion in reference prices relative to the cost of production over the last several years.” He noted that “those reference prices don’t mean the same thing they used to mean in terms of cost of production,” implying a weakening safety net for farmers.
The Value of Data: A Battle for Reports
The reinstatement of the July Cattle Inventory report by NASS was met with relief from Meyer and the agricultural community. He admitted to “annoying” his NASS colleagues in a “good way” to get critical data. “Data is the number one thing to get out the door, because you can’t recreate that,” Meyer stressed, emphasizing the crucial role these reports play in informed decision-making. He acknowledged potential changes in how reports are presented, with a move towards frugality, but reiterated the priority of getting the raw data out.
When questioned about the potential for technology like imagery data to replace on-the-ground observations, Meyer was optimistic. While Earth Observation is crucial for countries without robust statistical services or accessibility, he believes it’s not a full replacement for field observations. “I want to make it through till I retire with somebody in the field, walking the roads and the satellite before I’m convinced I know what those two relationships are,” he quipped, underscoring the enduring value of traditional data collection methods.
Interest Rates, Risk Management, and Global Opportunities
According to Meyer, rising interest rates are adding another “headwind” for farmers. “As we see folks borrowing more for operating loans because margins are narrower and cash supplies are down, the borrowing costs rise,” he explained. This, coupled with the lag in input prices declining after commodity price spikes, puts a “squeeze” on producers.
In this volatile environment, risk management tools like Livestock Risk Protection (LRP) look “quite interesting” for producers seeking to protect against potential downside risks.
Globally, Meyer sees opportunities for U.S. farmers in “value-added” products, such as meat and dairy, particularly in markets where American products offer unique qualities. “I think there are value opportunities added elsewhere in the world,” he stated, adding, “I think that the cattle operators have some good opportunity if they can get access to other markets with US product; the same with swine.” He cautioned, however, that “we’re facing a lot of competition on the bulk commodity side from South America.”
Regarding the U.S. agricultural trade balance, which has shifted from a surplus to a deficit, Meyer clarified that while the U.S. maintains a surplus in bulk commodities, it faces a growing deficit in “highly processed products or high value products.” This underscores the need for market access and the promotion of higher-value exports.
Finally, addressing the impact of the Russia-Ukraine conflict on wheat prices, Meyer admitted to being “surprised at how cheap wheat has been since we’ve got an active war zone where 30% of wheat trade comes from.” Despite the ongoing conflict, he noted that the market appears confident in wheat supplies.
