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By Matthew Ernst

Increasing prices and strong yields in 2020—with notable exceptions in areas impacted by drought and derecho—improved farmers’ financial positions this winter. As you’d expect, stronger bottom lines led to improved outlooks, especially after Thanksgiving.

“We are very optimistic now,” said Kevin Cox, who grows 4,000 acres of corn and soybeans near Brazil, Ind.

That optimism is manifesting itself in the farm equipment market.

In Purdue University’s Ag Economy Barometer reports in December and January, producers were markedly more inclined to consider now a good time to make large investments in their farms. Fifteen percent of respondents to the January survey reported plans to spend more on farm machinery purchases in the coming year. In May, only four percent planned higher purchases.

That sentiment is true on the ground in Indiana: “We are replacing a couple pieces of smaller equipment, but we’re not going crazy,” Cox said.

The risk always exists that weather or politics will startle markets, but agricultural market analysts are cautiously optimistic that Midwest crops will be profitable, and farmers will spend more aggressively.

Here’s a sector-by-sector outlook, based on trends in early February.

Soybeans

Analysts expected China to return to U.S. soybeans after trade tensions calmed and the purchases were again financially feasible for Chinese crushers, but there is more to this trend in profitability: Supply pressure is also pushing up prices.

Soybean ending stocks are projected at the lowest levels since 2013, and the USDA season average price projection passed $11 per bushel in January. Nearby soybean futures headed toward $14 in late January.

Exports will remain the biggest driver of soybean demand, but the industry’s continued effort to diversify also will influence the market.

“We’re trying to generate new international markets all the time, and always looking for new commercial uses for soybeans in the U.S.,” said Cox, who also is a member of the board of directors of the Indiana Soybean Association. He anticipates greater demand for U.S. soy from other Asian customers, especially on the Pacific Rim.

Corn

Strong export sales this marketing year, which started in September, are pushing corn prices back above breakeven. The story is again China, where purchases accounted for 80 percent of the increase in exports from September to December, according to Purdue University.

China continued buying in January, with USDA also reporting big sales to familiar corn customers like Mexico, Japan and Philippines.

The result? Producers with old crop corn saw March futures hit $5.50 per bushel, and new crop prices (December 2021 futures) knocked on $4.50. Combined with ad hoc government payments, producers realizing $4.25 for their 2020 crop could return around $200 per corn acre for 2020 and stay well within positive returns to management for 2021, according to the University of Illinois.

Cox, who saw his best corn yields ever in 2020, said he is investing in farm projects like tiling that will improve long-term productivity. “We’re very thankful, blessed by the good crop and the price outlook, but I’m not buying a new pickup,” he said.

Higher corn prices are not a boon for all Midwestern agriculture. Corn price hikes translate to higher costs for animal agriculture and ethanol producers. Ethanol producers saw continuous challenges in 2020 as lower fuel prices caused many ethanol producers to shutter plants for at least part of the year. Strength in ethanol by-product prices (corn oil and DDGS) helped producer profits, but many will incur substantial costs to reopen plants that were closed or paused in 2020, says Scott Irwin, a University of Illinois economist.

Wheat and Sorghum

Wheat prices rode corn’s rise in January, and favorable demand fundamentals increased USDA’s season average price forecast. It’s too early to forecast yields, but U.S. winter wheat acreage increased 5 percent over last season.

Global signs favor stronger wheat export demand, including a lower production forecast in Canada and Ukraine, as well as an increase in the wheat export tax in Russia.

China is a huge importer of grain sorghum, and USDA reported the biggest week ever of sorghum purchases in August. Grain sorghum prices trended higher from August to December, according to Kansas State University.

Pork and Beef

“I think we’re going to see beef demand improvement internationally, for sure,” said Kenny Burdine, University of Kentucky livestock economist. “I’m also optimistic, though, that restaurant demand improves by the second half of 2021. My guess is that we see higher cattle prices pretty much across the board this year.”

Consolidation continued in the pork industry in 2020, but consumer demand remained strong both at home and abroad. There’s potential for profitable hog prices in 2021, especially in the summer, according to a January forecast from Western Illinois University.

Something to anticipate across the U.S. meat sector: fundamental changes in how meat is processed. Pandemic-related labor shortages resulted in some U.S. firms fast-tracking more automation and robotics on meatpacking lines to create more space among employees.

Dairy and Poultry

The poultry sector was not as dramatically affected by the pandemic as the red meat sector, but “poultry wholesale values still got hammered,” Burdine said.

He thinks poultry integrators increased time between flock placements in 2020, decreasing poultry farm cash receipts. Burdine expects the poultry sector will increase production back to 2019 levels.

The USDA raised its national average milk price forecast for 2021 by $1.05 per hundredweight in January.

Still, upward movement in feed costs could offset the benefit of higher milk prices for dairy producers. Unless smaller dairy producers can enter more lucrative niche markets, future dairy profits in the Corn Belt will likely be realized in operations willing to expand to larger herd sizes that can capture economic efficiencies available from newer production technology.