Overall, 2021 has been a fairly good year for the agriculture industry. Agricultural commodity prices and net farm income are well above pre-pandemic levels and landowners benefit from the higher land values. Compared to 2020, farmers get much more of their income from the sale of agricultural and livestock products, and less from government checks.
Looking ahead to 2022, there are many reasons for continued optimism. Demand for meat, for example, is very high, and the United States Department of Agriculture (USDA) predicts that average livestock prices will be at their highest level since 2015.
The USDA estimates that domestic per capita beef use is up slightly this year, even though retail beef prices are significantly higher. This combination of higher consumption with higher prices can only happen if consumer demand is unusually strong.
Part of the increase in beef consumption may be explained by reduced supplies of other meats in the domestic market, but overall the disappearance of domestic meat is down by less than one percent. hundred this year. At the same time, the consumer price index for meat increased by 13% between November 2020 and November 2021.
There is no guarantee that this strong consumer demand will continue, of course, but there are other reasons for optimism in the meat sector. For example, the current outlook is for stable to declining prices for corn and other feeds.
The price margin between live cattle and processed beef was unusually wide in 2021, but that margin could narrow in 2022 if fewer cattle have to be processed. Narrower processing margins would benefit beef producers while limiting increases in meat prices for consumers.
Another reason for optimism is the expected growth in renewable diesel fuel production. This product uses soybean oil and other fats and oils to create a diesel fuel substitute, rather than just being blended with diesel fuel like conventional biodiesel.
A huge amount of new renewable diesel manufacturing capacity is under construction or planned in response to supportive policies in California. If even a fraction of this planned capacity is built and used, it will stimulate demand for vegetable oil and oilseeds like soybeans. One downside risk is that it could shift biodiesel production to existing plants in Missouri and other states.
A major risk facing the agricultural sector in 2022 is rising production costs. Fertilizer prices have increased in recent months due to various factors, and it seems unlikely that they will return to more normal levels in 2022. Our institute also predicts that the prices of corn, soybeans and other crops will fall. compared to their recent highs. , many crop producers are likely to see their net incomes decline in 2022.
Of course, there are many other uncertainties. In any given year, weather developments here and in other major producing countries can drive crop prices up or down. The evolution of the pandemic will affect all of our lives and the global economy. Changes in government policies could increase or decrease payments to farmers and have other impacts on the market.
Putting all the pieces together, our institute expects net farm income to decline moderately in 2022, but it’s easy to envision both more optimistic and more pessimistic scenarios.
Pat Westhoff is director of the University of Missouri’s Food and Agricultural Policy Research Institute and professor of agricultural and applied economics. The opinions expressed here are his own and do not reflect the official positions or endorsements of the University of Missouri.