Drought monitor reports continue to indicate that the Four Corners Region is in moderate to severe drought, but the NRCS Snotel reports offer some hope to farmers, ranchers and residents. As of yesterday’s report, both the Dolores-San Miguel and Animas River Basins’ snow water content is 107% of the 30 year average, the same as it was year ago. Southeastern Utah river Basins are at 133% of average, 4% higher than a year ago, and the San Juan River is 10% lower than a year ago at 100 % of average. The entire Upper Colorado River basin, which includes includes tributary rivers in southwest Wyoming, western Colorado, Northwestern New Mexico, eastern Utah, and northeastern Arizona is also 107% of average.
While we’ve heard a lot about international trade recently, we may not think about states in the Four Corners States Region as participants too, but exports from the Region amounted to several billion dollars worth of ag products in 2018. Colorado sent almost $1.9 billion to export markets, followed by Arizona with about $1.5 billion, New Mexico with over $750 million and Utah rounded out Four Corners exports with $430 million.
Both commodity and stock markets were down yesterday due to concerns about the coronavirus outbreak in China. Investors dumped stocks related to travel, consumer products and companies with close links to China, while commodity traders and farmers were spooked by the possibility that China might declare an emergency and pull back on purchase commitments made to buy U.S. agricultural commodities. Corn, soybeans, wheat, live cattle and lean hogs were all down at the end of trading yesterday afternoon.
The almost two year wait for clarity concerning the U.S/China trade war finally ended with the signing of a Phase One agreement last Wednesday. The agreement was touted as a great win for agriculture, with promises of increased purchases of a wide variety of agricultural goods, including grains, oil seeds, pork, poultry and beef. But details of exactly how much China has agreed to purchase varies with who’s telling the tale. Just prior to the signing the agreement, China’s Vice Primer Lieu stated that three factors would help determine Chinese purchases: 1st, domestic demand, commodity prices around the world, and by both nations encouraging trade.” He went on to say that as the living standards of the large Chinese middle class rises, China will import fine quality agricultural products from around the world. On the other hand, speaking at the American Farm Bureau Federation Convention in Austin, Texas last Sunday, President Trump said, “I’ve told everyone you’ve got to buy a lot of land and we’ve got to get much bigger tractors right now. We’re going to sell the greatest product you’ve ever seen. He went on to say that under this landmark agreement, China will be purchasing $40 billion to $50 billion of American agricultural products every single year, tripling our agricultural exports to China.” But on Saturday, attendees had heard a more cautious talk from John Anderson, the former deputy chief economist of the American Farm Bureau Federation and a professor of agricultural economics at the University of Arkansas. He pointed out that the U.S. and China signed a phase one agreement that calls for China to purchase $36.5 billion in U.S. agricultural goods in 2020 and $43.5 billion in 2021. In 2017, the Chinese purchased $24 billion in agricultural commodities from the U.S. But, Anderson pointed out, that if a rebound in the supply of agricultural commodities gets ahead of demand, it could mean a “fairly negative outlook for agriculture in the near term. Time will test how well the new agreement will impact farmers and ranchers.
The 2019 hemp rush reminds me of stories about the 1859 Pikes Peak Gold Rush, that attracted thousands of gold seekers to the central Rocky Mountains, many of whom painted Pikes Peak or Bust on the canvas covers of their wagons when they headed west. Within a couple of years, many of these miners headed back east with signs on their wagons reading Pikes Peak or Bust with Busted by Thunder! Added. By late winter last year, hemp was being promoted as a sure thing for instant wealth. Newspaper articles were quoting promoters who claimed that hemp growers would make $50,000 per acre for anyone who planted the crop. Businesses to supply potted hemp plants and seeds to eager growers and to buy and process the crop for CBD oil that has sprung up in 2018. But Extension specialists and management consultants were recommending that both farmers and potential growers take a cautious approach to growing the untested crop, and start out with no more than an acre of hemp to learn how to grow it. At the same time, the number of licenses to grow hemp in the U.S. grew from about 3,500 in 2018 to almost 17,000 in 2019. But undeterred, many neophyte growers borrowed money or used retirement accounts to finance land leases and purchasing inputs that amounted to $15,000 to $20,000 per acre. In February of 2019, the price for hemp biomass used for CBD oil extraction was quoted at $50 per pound, indicating that at a yield of 1,000 pounds per acre, a gross return of $50,000 per acre was possible. But the Devil’s in the details. Hemp is a crop not unlike wheat, beans or corn. Weather, irrigation, weeds, pests and disease can impact the crop, and like all other crops, supply and demand come into play. By the end of 2019, many hemp fields had been abandoned in the Four Corners Region. Whether it was because of the lack of knowledge about how to care for the crop, the hard work involved, weed infestations, and plummeting hemp biomass prices, the end result was that some of the optomistic growers were like many of the 1859 miners, busted by thunder. Currently, most growers who harvested a crop are holding it, waiting for prices to return to a profitable level when the demand again matches the supply.
Here in the Four Corners Region, farmers and ranchers keep an eye on moisture, both in the soil and in the mountain snow pack. The U.S. Drought Monitor indicates that all of the Region is in severe drought, and the Four states have abnormally dry to severe drought over more than half of their land mass. However, at this point in time, the NRCS Snotel Update Report indicates that the Upper Colorado River Basin has 118% of normal snow pack, measured in snow water content, with the Dolores watershed at 126% of normal, the Animas is 121%, the San Juan is 111% and Southeast Utah is a great 176% of normal. Farmers wonder, will it last? National Weather Service 90 day forecast predicts that the Region will have below normal to normal temperatures and average precipitation, Generally, winter weather in the western U. S. is influenced by weather patterns generated by El Niño, the cooling phase or La Niña, the warming phase of sea temperatures across the tropical Pacific. When active, these patterns send regular train loads of moisture-laden storms across the United States, dropping snow in the Rockies, providing most of our annual precipitation in the winter. When these patterns are in neutral, as they are this winter, the trains don’t run as often, and predicting their schedules is harder.
As 2019 ends, so does the decade. Many farmers and ranchers will agree that 2019 has challenged them with unfavorable weather, trade wars and uncertain markets, but farm income increased by over $10 billion from 2018, mainly due to federal trade mitigation payments. Farmers are looking forward to an end to Trade war with China in early 2020. The decade of 2010s has been quite a ride for agriculture. Net farm income will amount to $92.5 billion this year, which is pretty close to where we started the decade, but income charts look like a roller coaster, going from $90 billion in 2010 up to $135 Billion in 2011, down to $110 billion in 2012, back to $140 billion in 2013, and sharply down to $55 billion in 2016. The ride back up to over $90 billion has been slow the past three years resulting in farm debt rising this decade from about $320 billion to a projected $416 billion this year, which is just slightly less than in1980, at the height of the farm debt crisis. That number could be interpreted as a significant problem, but non real estate debt has remained static this decade, and although real estate debt is higher than in1980, farm real estate values have risen at a consistent rate, keeping pace with the increasing amount of real estate related debt.
The 2018 U.S. Census of Agriculture is still reveling some interesting statistics that indicate that farm sizes are growing and that over all farm numbers have declined since the 2012 census by over 3%. According the census, there are 2,042,220 farms and ranches in the United States that utilize just over 900 million acres of land. About 243 million of these acres are dedicated to oilseed and grain production, while cattle operations and dairy farms use 405 million acres, and farms producing fruits, vegetable and nursery crops account for just 27 million acres of farmland the rest of the acres are used for forage production, cotton, and a variety of minor crops. The top five states ranked according to the number of farms and ranches include Ohio at number 5, with almost 88,000 farms, Oklahoma is number 4, Iowa is number 3, Missouri is in second place, and maybe you guessed it, Texas is number one with well over a quarter of a million farms and ranches.
Over the past two trading days, commodity markets reacted positively to the news that a phase one trade deal has been struck with China, but doubts still linger. On Friday, the Wall Street Journal reported that an agreement had been reached, but early in the day, President Trump told reporters that that was fake news. A couple of hours later though, a government spokesperson acknowledged that an agreement had been reached. Yesterday, commodity markets closed with corn up 7 cents per bushel, soybeans gained 14.5 cents and wheat out shined all of the grains by gaining over 17 cents for the day. While this news seems to indicate that the year-and-a-half ole trade war is finally winding down, ag economists are and trade analysts are telling farmers to be cautious about reading too much into the preliminary trade deal. Trade Representative Robert Lighthizer stated that larger farm exports would be a major element of the target of $200 billion a year in manufacturing, agriculture, services, and energy sales to China, and by the second year, the U.S. will almost double exports of goods to this country if the agreement is in place. But Joe Glauber, Senior Research Fellow at the International Food Policy Research Institute pointed out that officials spoke as if farm trade was running at $21 billion a year, a level seen before the trade war. So the minimum of $40 billion annually in sales would require an increase of $16 billion or so over the amount of agricultural products shipped to China in 2017, before the trade war started. On November 25th, Glauber said that “It will be very hard to get to the $40 bil let alone $50 billion promised.” So ag economists and farm management advisers are counseling farmers and ranchers to a while before inking contracts to buy new half million dollar tractors or signing a deal to purchase more land, because there are still too many unknowns about this trade pact.
Last week, Federal and state regulators issued guidance to clarify that financial institutions no longer need to report customers who are growing or cultivating hemp to federal banking regulators . In the past, Banks were required to file “suspicious activity reports”concerning customers who grew hemp related products, even after industrial hemp was approved as a crop in the 2018 Farm Bill. This guidance followed the recent release of the USDA’s regulations concerning growing hemp in the U. S. Even though industrial hemp, which is restricted to .3% THC, the active ingredient in marijuana, was approved as a legitimate crop in over half of the states, until the USDA regulation came out, federal regulations maintained that hemp was a Schedule one drug, which created a nightmare for some growers who shipped their crop out of their home state.