Despite a fairly robust general economy, 2018 promises to be a fairly challenging year for many agricultural sectors. We expect Northeast net farm income to decline in 2018, due mainly to weak commodity prices.
A significant factor in this decrease is falling milk prices. The forecast for milk prices has significantly worsened over the last few months, and are projected to decline by approximately 10 percent from the 2017 average in 2018. This will have a significant effect on dairy farms’ net incomes, which are expected to fall to 2016 levels.
There are a number of reasons for the disappointing forecast. A major one is that milk production, both at home and abroad, continues to outpace demand growth. While demand for butterfat remains strong, skim milk and milk powder are in surplus globally.
Prices for grains and oilseeds also remain weak. Despite a decline in U.S. corn acreage in 2017, record yields mean that supplies are ample, with ending stocks increasing to nearly 2.4 billion bushels. As a result, average prices for the 2017/18 marketing year are expected to be the lowest in more than a decade. Large inventories mean that it will be difficult for demand to increase enough to support much growth in prices. Low corn prices will likely cause farmers around the world to shift to other crops, which could lead to future improvement in corn prices.
Soybeans have generally been more profitable than corn for cash field operators in recent years. China’s seemingly insatiable demand for soybeans has supported prices and kept stocks manageable. However, major competition from Brazil and increased soybean plantings as growers shift away from corn will keep a lid on price increases.
Relatively good performance is expected from the green, vegetable and ag retail industries. These sectors are less linked to exports and more closely aligned with the general economy than major commodities.
Weather on key spring weekends will have a major influence on what kind of year the greenhouse and nursery industries have, but barring a cold, rainy spring, it should be a good year for ornamentals. Resurging spending on residential construction and renovation bodes well for the green industry.
Fruits have been variable, depending on the specific crop. Apples and small fruits have generally performed well in recent seasons, and that is expected to continue. However, cranberries and juice grape markets have been weak with supplies exceeding demand.
Vegetables have benefitted from growing consumer interest in local foods. Both wholesale and retail buyers have increasingly sought out local farms for their produce needs. Margins vary by crops, but overall, vegetable growers should look forward to a good year in 2018.
Forest product producers are also seeing benefits from the improving economy and housing markets. In addition, reconstruction efforts from the 2017 hurricane season have boosted lumber demand. Pulp and biomass markets are still weak, but lumber prices have been good.
For all sectors of agriculture, the availability and reliability of labor continues to be a major challenge. Producers report increasing difficulty hiring and retaining both production and supervisory labor.
Overall a mixed bag for Northeast agriculture, with some sectors performing well, while others are more challenged. Farm Credit East remains committed to the success of Northeast farming fishing and forestry, and will continue to work with producers through the highs and lows of industry cycles.