A key to making a profit in 2018 will be producing a quality product, said Kim Anderson, OSU agricultural economics professor and Extension economist.
“The odds are that Oklahoma farm income from grains will remain at relatively low levels and in some cases below survival levels,” Anderson said. “Oklahoma’s wheat production break-even price is about $4.75 per bushel. At this writing, wheat may be forward contracted for 2018 wheat harvest delivery for $3.70 per bushel.”
The OSU economist emphasizes the need to grow a quality grain product.
“If Oklahoma farmers produce wheat with protein above 12 percent and test weight above 59.5, the 2018 wheat harvest price is projected at $4.50. With $4.50 wheat prices, producers with above average production may be able to cover more than variable costs.
The producer is going to have to grow a quality product for both the domestic and export market. If they can do that, it should generate a profit.”
Analysts predict that 2018 wheat harvested acres will be less than 2017’s 2.9 million acres. Corn, soybean, and cotton acres are projected to increase. Anderson said current corn, soybean price levels and average production could provide positive farm income but may not be enough to sustain farm survival.
Anderson also expects cotton prices and average cotton production to provide adequate income with some caution.
“Given more favorable cotton returns, farmers are projected to increase cotton planted/harvested acres which will have the tendency to lower cotton returns,” Anderson said.
The veteran economist sedately added most analysts predict it will take two to three years to work through these relatively low income years.
“Some farms will not survive,” Anderson said.
Record beef production in 2018 will lead to steady or slightly lower cattle prices, according to Derrell Peel, OSU Extension livestock marketing specialist.
“Herd expansion in 2017 means that feeder cattle supplies will continue to increase in 2018, pushing more cattle through feedlots,” Peel said. “Cattle slaughter will increase year over year and carcass weights, which declined in 2017, will likely increase as well in 2018. These are expected to combine for a four to five percent year over year increase and push 2018 beef production to a new record high.”
Strong Beef Demand
The OSU livestock specialist expects strong domestic and international demand for U.S. beef to continue in 2018.
“Increased beef exports and decreased imports are projected in 2018 and are expected to offset roughly half of the increase in beef production, thereby limiting the increase in domestic beef supplies,” Peel said. “New beef export potential in China is expected to grow slowly in 2018 but could add additional export support if growth in that market accelerates faster than expected. Domestic beef demand is expected to remain strong baring any unexpected U.S. macroeconomic or global economic shocks.”
Like most economists, Peel is ambidextrous! Beef demand could also be knocked down a notch or two.
“Beef demand will face challenges in 2018,” Peel said. “With growing pork and poultry production resulting in record total meat supplies, and threats of disruptions to trade agreements, this could negatively impact meat trade. The potential for unexpected demand weakness is the major source of downside risk in cattle and beef markets.”
Peel expects a small decrease in cattle prices due primarily to moderated demand in 2018.
“Average annual cattle price decreases of four to eight percent are anticipated though price decreases could be sharper by the end of 2018,” Peel said. “Feed and other input prices are expected to remain favorable in 2018. Profit margins for cattle producers will likely be squeezed in 2018, though modest profitability prospects continue. However, the general downtrend in cattle prices and higher downside price risk means that risk management takes on additional importance for cattle producers in the coming year.”