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Will Secor, an economist with the CoBank Knowledge Exchange Division, based in Denver, Colo., spoke at the North Dakota Grain Dealers Association annual meeting in Fargo on Jan. 21. Photo taken Jan. 21, 2018, in Fargo. (Forum News Service/Agweek/Mikkel Pates)

CoBank cautiously optimistic over farm economy

FARGO, N.D. — One of the nation's biggest ag lenders is "cautiously optimistic" for farmers in 2019, with worries coming in soybean prices and trade issues.

Will Secor, an economist with the CoBank Knowledge Exchange Division, based in Denver, spoke at the North Dakota Grain Dealers Association annual meeting in Fargo on Jan. 21.

Secor said North Dakota has seen weaker soybean "basis" levels — the differences between local prices and national market figures — due to trade disputes with China. The region's soybean basis is poorer than a year ago at this time, but better than at harvest time.

Secor said U.S./China trade talks are one month into a three-month "truce," to avoid further tariffs, but "time is running out to address some of the bigger structural issues that typically would take months and months," to solve. The corn basis also is weak, in part due to weaker demand from ethanol plants.

Farm strength

The financial condition of farmers today is better than it was in the 1980s, Secor said, but pain may be coming.

Helping to buoy farmers' balance sheets is the fact that farmland values have actually increased by 8 percent from a year ago in North Dakota, compared to a 1 percent decline in Minnesota, South Dakota and Iowa, Secor said, citing a report from the Federal Reserve Bank of Kansas City. Loan interest rates in the late 1970s and early 1980s ranged from 8.5 to 19 percent, compared to today's 4.5 percent rates today.

But working capital on farms is "a third of what it was in 2012," Secor said. The farm debt-to-income ratios "parallel to what we saw in the last four years of the 1970s, leading up to the 1980s farm credit crisis," he said. Interest costs for hypothetical Midwest grain farms have climbed to nearly 22 percent of total cost — up from 13 percent in 2015.

Also, for the first time in a decade, farm loan delinquencies are higher than the percentage of all loans that are delinquent, he says.

CoBank continues to be a "good partner for the Farm Credit System and for farmers and co-ops around rural America," he says. "Farm financial stress really isn't changing what we're doing," he says.

He said farmers today are larger, with greater marketing power due to on-farm grain storage, as well as increased connections with end-users and processors. Technology ranging from satellite imagery to autonomous or robotic pest control will have an effect. Oklahoma State University is using autonomous drones to identify Eastern red cedar pests in pastures so that ground-based robots can go and cut them down.

Foreign shores

Looming on the horizon, the South American soybean trade is expecting an influx.CoBank sees a bigger Brazilian soybean crop than last year, but dry weather in Brazil and overly-wet weather in Argentina have bumped off a bumper crop.

Farther in the future, Brazil could become a bigger export rival as it builds out a railroad going north from Mato Grasso state north into the Amazon basin. Five to 10 years from now, that would replace BR-163 highway, "where you see a lot of pictures of trucks stuck in the mud," he said.

In Argentina, macroeconomic conditions have forced the country to equalize export taxes, among its exports of soybeans, soybean meal and soybean oil. As a result, that soybean meal and oil don't have the benefits they used to enjoy, indicating that more raw soybeans will be exported from that country in 2019 than they have exported in the past.