At this time it's a good idea to write down what you expect to happen this coming year — what your business plans are and what your objectives are — in farming and in life. It's a tremendously useful exercise, and when done on a consistent basis it forces you to be more analytical and, in most cases, more reasonable in making decisions.
So, let's take a look at three of the biggest surprises in agriculture over the last 12 months that I dare say few, if anyone, could have forecast.
The bull market in soybeans. One year ago the majority of news concentrated on the vast expansion in South America. Along came the most severe August drought in history and now we're looking at one of the largest bull markets in soybeans ever witnessed.
Farmland prices have exploded. I don't believe anyone forecast that land prices would go down, but who could have foreseen the huge increase in prices that occurred? Increases of 20% are very common. Many areas have experienced increases of 40-50% in just the last year. Low interest rates, which have propelled tax-free exchanges, have given an unexpected push in farmland values.
The cattle market. Through noon on Dec. 23, 2003, cattle producers were getting ready to celebrate the most profitable Christmas in their lifetimes. No one has ever seen the likes of the profitability cattle producers experienced in 2003.
A big share of those profits, unfortunately, was the result of one mad cow in Northern Canada, which resulted in closing imports from that country. And then, on the afternoon of Dec. 23, a mad cow was discovered in a dairy herd in Washington state. The result was an obvious and immediate collapse in the cattle market. It gets back to the old saying: “If things appear to be too good to be true, they probably are.”
LOOKING TO 2004
Where are we headed in 2004? Here are just a few of my thoughts that you may want to consider:
One year from now we'll be back in the LDP game. Between now and then, however, we should have better marketing opportunities to sell corn and soybeans. But barring another major weather problem, a decent crop of soybeans in the U.S. combined with a record crop in South America, we'll have soybeans back under loan rate once again.
The farmland market will stay strong. Increases comparable to those of this past year are not likely, but a downward price move similar to the early 1980s is out of the question. In order to have a sharp decline in asset values you must have forced liquidation sales. Debt levels, along with interest rates, are much too low for such a situation to occur. Even with low commodity prices, the worst that could happen is that farmland prices will go flat.
The livestock industry will be in turmoil. The issues facing cattle producers are relatively obvious. If the mad cow situation is straightened out, 2004 could be a modestly good year for the cattle industry — but nothing compared to 2003. Last year will go down in the history books as one of those once-in-a-lifetime opportunities.
If the mad cow situation isn't straightened out, 2004 may well be a year people don't want to remember in the meat industry.
Pork producers also have their hands full this coming year. Pork production is currently only marginally profitable. Yet production of both pork and poultry continues to expand. Packer contracts haven't been the answer. While intentions were good 10 years ago when many contracts were written, most of the contracts have proved to be detrimental to pork prices. This will be a year of significant adjustments.
PUTTING IT ALL TOGETHER
Volatility will continue to be the key in commodity prices and in farming in general for the next 12 months. Consolidation will persist among farmers and agribusinesses as some choose not to cope with such volatility.
I wish there was a simple solution to these issues, but the reality is that change is inevitable. It provides both anxiety and opportunity. Have a good year.
Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.