While the U.S. economy is on firm footing, the rural economy will continue to face headwinds in 2020, according to a new report from CoBank.

The U.S. farm economy has demonstrated its resiliency in the face of trade wars, extreme weather and other disruptive events. But without a meaningful trade deal with China, the U.S. agricultural economy will continue to struggle, stated the report from the private agricultural financing bank that serves all 50 states and is based in Colorado.

“Our thinking is the U.S. economy continues to push ahead. That’s thanks to the strength of U.S. consumers,” Tanner Ehmke, manager of CoBank’s Knowledge Exchange, told Capital Press.

The U.S. economy and the global economy are slowing, in part because of the trade war, but there’s nothing to say a recession is imminent, he said.

But U.S. agriculture is trying to navigate in an uncertain trade environment and a global surplus of agricultural commodities, he said.

“The stress is still there; it’s not gone away,” he said.

Net farm income did rise in 2019 but only because of Market Facilitation Program payments. Without them, there would have been net losses. The question is whether producers can rely on those payments in 2020 if there’s no resolution on the trade war, he said.

“So we really need to resolve the trade war,” he said.

China has promised to buy $40 billion in U.S. agricultural commodities, he said.

But “if we’re going to trust those numbers, we have to see actual sales,” he said.

That said, there are bright spots in the farm economy. Dairy farmers and cattle ranchers are headed into 2020 on improved footing and with a better outlook. Prices have recovered for both milk and cattle, supported by strong dairy and beef exports and strong domestic demand, he said.

Improved exports of all animal proteins are supported by rising global demand and pork production losses due to African swine fever in China and surrounding countries, he said.

Wheat prices, in general, have recovered on declining U.S. acreage and swifter exports to some key markets, such as Mexico. In the year ahead, drought in Australia is likely to reduce that nation's crop and boost U.S. wheat exports to Asia, he said.

When it comes to exports, however, the U.S. economy is still strong and that supports the value of the U.S. dollar. That makes U.S. exports more expensive, and commodity prices typically go down as the value of the dollar goes up, he said.

There are always going to be stresses in the farm economy, he said.

“Debt levels are still high, and margins are still slim,” he said.

Cost of production is going to continue to rise in the year ahead. As long as the trade war (with China and other countries) is in place, it’s going to raise the cost of everything, including irrigation systems and fencing, he said.

The main story on costs, however, is that land values haven’t gone down; some have appreciated, and cash rents in some places are going higher, he said.

“That’s a major squeeze that’s not going away. It will continue to cause stress for farmers and ranchers in 2020,” he said.

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