2022 Situation

Agriculture continues to be on a wild ride with a multitude of factors impacting prices, income, and the overall outlook for the ag economy. Spiraling inflation topped the headlines in 2022, but other factors such as major weather events, continued supply chain disruptions, soaring input prices, labor challenges, and trade disruptions continued to offer challenges for most businesses this past year, including agriculture. On top of these factors, the war between two major global ag markets, Russia and Ukraine, generated significant impacts on commodity prices and the availability of both farm inputs, ag trade flows, and global food supplies. Despite these extreme events, the U.S. farm economy remained relatively strong in 2022. Even with record increases in input expenses and considerably lower government payments, USDA is projecting that U.S. net farm income will be higher in 2022.

The ag economy continues to depend heavily on trade outcomes. Despite several adverse trade headwinds such as a much stronger U.S. dollar (up more than 10% in 2022) and global economic growth cut in half, the value of U.S. agricultural exports will end up the year at record high levels, with gains across most ag commodities and major food products.

Leading the list of the largest export gains for ag products important to Kentucky (through September 2022) are U.S. soybean exports (+49%), dairy (+26%), beef (+ 21%) and poultry (+18%). U.S. distilled spirit exports are 25% higher, while forestry products are up 10%, both rebounding from dismal 2020- 2021 export levels. Pork exports are down 10%, and tobacco exports continue to plummet.
Certainly, higher commodity prices are responsible for the growth in export value as export volume was constrained by tight supplies for several ag commodities/products, not by a lack of demand. China remains the U.S. largest foreign customer for U.S. agricultural products, but U.S. ag sales to other major foreign markets, including Canada, Mexico, Japan, and the European Union all experienced double digit percentage increases through September 2022 compared to the same period last year.

U.S. ag production expenses are projected to increase by nearly 20% in 2022, which would be the highest annual dollar increase on record. While prices for some inputs such as fuel and fertilizer have moderated in recent months from their levels earlier in the year, they remain relatively high and volatile. Even with higher input prices, ag commodity prices have generally increased by a larger percentage as tight global supplies amidst strong export demand are keeping prices well above levels observed in recent years.

Interest rates have steadily increased in recent months in response to the Federal Reserve’s actions to fight inflation. Operating and real estate loans are now above 7% and will likely inch up more by the end of the year. Higher interest rates and tightening profit margins may soften the surge the growth in land values observed during the past years, but farm asset values remain strong. Consequently, even in the midst of some emerging concerns (higher interest rates, increasing debt loads, and uncertainty over the future value of farm prices, income, and assets), the balance sheet for U.S. agriculture remains solid heading into 2023, especially compared to the 2016-2020 period.

Kentucky 

After a string of great years, mother nature was not kind to Kentucky farmers in 2022. Extensive periods of excess rain early in the growing season, followed by drought conditions during critical growing periods led to lower crop yields plus a poor curing season for tobacco. The December 2021 tornado in west Kentucky and the July 2022 floods destroyed ag infrastructure and likely affected 2022 farm marketings/income in these areas. While Kentucky farmers benefitted from relatively high national commodity prices, local grain prices were adversely impacted during the harvest season by the effects of low water levels on the Mississippi River limiting grain flow to domestic and export markets and inducing significant carryover of grain into 2023.

Despite these challenges, Kentucky ag cash receipts may approach a record high $8 billion for 2022, well surpassing last year’s record high of $6.9 billion. Adjusted for inflation, our 2022 receipt estimate if achieved, will be 19% higher than the inflation-adjusted average over the previous ten years. Overall, farm-level prices received by Kentucky farmers will likely exceed lower yields/marketings for most Kentucky ag enterprises. Despite challenges evolving from the tornado and avian influenza, poultry is expected to regain the top spot in Kentucky agriculture with a 20% market share of receipts, followed by soybeans and corn (both at 18%), horses (16%) and cattle (13%).

Kentucky farmers established a record net farm income in 2021 with exceptional yields and growing export markets. Inflated input prices and limited direct government farm payments for this year will partially offset Kentucky’s expected record level of farm cash receipts for 2022, but crop insurance payments should cushion the blow for Kentucky farmers impacted by natural disasters, leading to another year of relatively strong net farm income levels for Kentucky agriculture.

2023 Outlook

Historically, periods of high global ag prices often lead to a global production response which typically results in commodity prices falling more than sticky ag input prices. However, agriculture will enter 2023 with continued tight global supplies of most agricultural commodities and thus continued relatively high commodity prices. However, the upcoming year is filled with much uncertainty over issues such as the war in Ukraine, South American crop production response, economic challenges in China, the effects of inflation on interest rates and the cost and availability of ag inputs.  U.S. ag export demand could be dampened by a slowing global economy and an anticipated higher valued U.S. dollar. Most ag economists expect commodity prices and margins to moderate in 2023, but still maintaining relatively high cash receipts and net income levels. But the outlook is very vulnerable to radicle changes in global economic, geopolitical events, weather and disease factors which could easy lead to extremely volatile farm prices and incomes. Consequently, producers must continue to monitor to changing conditions, and be ready to adjust marketing strategies often amidst this extreme uncertain marketplace. 

2022 Situation

In a year when production was expected to be lower, beef production was actually higher in 2022. Wide spread drought and a relatively strong cull cow market resulted in a lot of cattle being pulled forward and a large proportion of females entering in the beef system. In fact, the size of the US cowherd has been decreasing since 2019, but we have not yet seen an annual decrease in beef production. While USDA estimates won’t be released until early 2023, it is likely that the size of the US beef cow herd decreased by another 3-4% for the year, which would put the herd near the levels seen in 2015.

2023 Outlook

While there is uncertainty about demand and weather going forward, the fundamentals look very strong in the beef cattle sector. A decrease in beef production of more than 5% is very likely for 2023 and the supply of feeder cattle and calves will continue to get tighter. The spring calf market should be extremely high, with 550 lb medium / large frame #1-2 steers averaging more than $2 per lb on a state average basis. Tight supplies and high feed prices will support heavy feeder prices, which should trend upward throughout the year. Value of gain will remain strong and opportunities to add weight to Kentucky cattle should exist, despite high feed costs. High value of gain should also lead to attractive margins for stocker operations that add lbs via forage from spring to fall.

2022 Situation

Avian Influenza (AI) was the primary story of poultry markets this year at the national level. While AI was found in Kentucky, it was largely contained and the impacts were limited. National broiler production was higher in 2022, but production was down considerably in the Commonwealth. Several operations were impacted by the tornadoes that ripped through much of Kentucky in December of 2021 and a processing plant in the Western part of the state operated at reduced capacity for a period of time. This, combined with an increase in time between flocks, worked to decrease production at the state level. Much was made of decreasing broiler prices through summer and fall, but wholesale price levels have remained above last year’s levels.

2023 Outlook  

Feed and labor costs will again impact integrator margins and may continue to result in increased time between flocks in 2023, but Kentucky production levels should return to near normal levels. Poultry producers will continue to feel the impact of high energy costs on their returns per flock. Construction costs and higher interest rates will also limit growth in the sector and may impact upgrades to existing houses. While the industry remains stable, the last couple of years have driven home the importance of risk factors such as disease outbreak and natural disasters, both of which should be on the minds of Kentucky’s poultry producers.

2022 Situation

The year 2021 was a banner year for hog markets as prices reached their highest levels since 2014. Eastern Corn Belt hog prices actually exceeded those levels in 2022, but significantly higher feed prices ate into margins somewhat. Still, farrow-to-finish returns were positive for most of the year. Surprisingly, hog inventory has been decreasing since 2020, despite relatively attractive return levels. Export levels have decreased from their recent highs as China appears to have rebuilt its hog inventory, but remain well over 20% of domestic pork production. 

2023 Outlook

USDA-ERS is predicting a slight increase in pork production in 2023, but that will primarily be a function in increasing productivity. Exports are also likely to face continued headwinds going forward. Hog prices will likely decrease from 2022 levels, but remain historically strong. As with all livestock species, feed prices for the coming year will impact profitability. However, farrow-to-finish returns are likely to be in the black for most of 2023.

2022 Situation

Equine markets have continued their very impressive recovery from the depressed market brought on by COVID-19. After seeing an increase of 38% from 2020 to 2021, Keeneland sales increased by another 9% in 2022. This was the highest sales level since 2007. A continued return to normal likely had a positive impact on markets for competition horses. Coming out of the pandemic, excess disposable income, an increase in remote work arrangements, and a possible change in priorities likely had a positive impact on the demand for horses of all types.  

2023 Outlook

While there are risk factors that can impact equine markets, the general strength of the sector is likely to remain. Revenues generated from historical horse racing (HHR) continue to increase purses and attract quality horses to the state. This trend is also undoubtedly feeding into sale values and possibly stud fees, the two main components of equine farm level receipts in the Commonwealth. While the number of mares bred may continue to decline slightly, it is also possible that trend will be offset by strength in the markets. So, another increase in equine receipts at the state level seems very likely for 2023.

2022 Situation 

Dairy cow inventory steadily increased for the first several months of 2022 as farm level milk prices improved, then largely flattened through summer and into fall. The U.S. All Milk price will average around $25 per cwt for the year, which will be more than $6 per cwt higher than 2021, despite the fact that milk price levels have retreated from their spring highs. This price improvement was partially offset by increased feed costs as the estimated feed cost included in the Dairy Margin Coverage (DMC) program ration increased by about $3 per cwt of milk produced from 2021 to 2022.

2023 Outlook

Dairy cow numbers in 2023 should be comparable to what was seen in 2022. But, productivity gains are likely to result in about a 1% increase in milk production across the U.S. Kentucky farm level milk prices will likely be a bit lower than 2022, but should average well above $20 per cwt. However, feed prices will continue to be the lead story. With feed prices at current levels, farm level milk prices in the low-mid $20’s will feel much more like milk prices in the upper-teens in a historically normal feed cost environment. As is always the case, profitability challenges will be especially felt on smaller scale dairies with higher cost of production.

2022 Situation

Total production for the 2022 national corn crop is projected to be 3% lower than the five-year average. Corn use for ethanol production is stable.  Livestock feed use is projected to decrease 5% compared to the five-year average. Given these changes and that initial stocks were started out the marketing year at low levels (30% lower than the 5-year average), the USDA is projecting a 34% decrease ending stocks over the five-year average, pushing the expected U.S. on-farm corn price up to $6.80/bu for the 2022-23 marketing year. In Kentucky, corn prices are $6.40-6.70/bu as of late-November, with forward contracting prices jumping to $6.60-6.90/bu this winter in our better markets 

2023 Outlook

2023 harvest contract corn futures are up $1.25/bu from expectations a year ago, resulting in forward contract pricing of $5.60-5.85/bu for the 2023 new crop delivery. This would be an increase of approximately $220/acre for 175 bu/acre corn crop.  Fertilizer prices have increased slightly from for the 2023 crop, compared to the 2022 crop, resulting in approximately $20-25/acre increase over fertilizer prices for the 2022 corn crop. However, fertilizer prices are up significantly from pre-2021 levels, as well as other input costs. Luckily, the overall prices increases since 2020 results in much higher increase in revenue compared to these increases in costs.  

2022 Situation

Total production for the 2022 soybean crop is projected to be 3% higher than the five-year average. U.S. soybean use are projected to be 5% higher than the five-year average, while soybean exports are projected to be 2% higher than the five-year average.  The effect of these changes combined with low levels of initial stocks (44% below the five-year average) is a 54% drop in soybean ending stocks over the 5-year average, pushing the expected US on-farm soybean price up to $14/bu for the 2022-23 marketing year.  In Kentucky, soybean prices are $14.20-14.50/bu as of late-November, with forward contracting prices $14.40-14.70/bu bu this winter in our better markets.  

2023 Outlook

2023 harvest contract soybean futures are up $2.00/bu from expectations a year ago, resulting in forward contract pricing of $13.30-13.60/bu for the 2023 new crop delivery.  This would be an increase of approximately $110/acre for 55 bu/acre soybean crop.  Fertilizer prices are up approximately $25-35/acre increase over prices for the 2021 soybean crop.  

2022 Situation 

Soft Red Winter Wheat production in 2022 increased 17% compared to the 5-year average.  However, when combined with extremely low initial stocks (39% below the 5-year average), the resulting available supply going into the marketing year is down 3% from the 5-year average.  Domestic use is projected to be down 2% and exports up 38%, for a total use increase of 10% over the 5-year average.  Combined with the available supply, the resulting ending stocks are projected to be down 35% compared to the 5-year average or about the same level as we started with this year.  This has led to leveling off of prices.  In Kentucky, cash prices as of late-November are around $7.30-7.60/bu.  However, wheat prices were at or near $10/bu during early summer harvest time and much of the 2022 crop was sold at these levels.

2023 Outlook

2023 harvest contract wheat futures are about the same compared to expectations a year ago, resulting in forward contract pricing of $7.30-7.60/bu for the 2023 new crop delivery.  Double-crop wheat and soybeans are projected to be considerably more profitable than full-season soybeans on the better wheat ground in Kentucky.

2022 Situation

Kentucky tobacco farmers had the opportunity to grow a larger crop in 2022 due to tight supplies, but declining margins led to continued concentration in the number of growers and mother nature took its toll on yields in certain areas and especially on quality with a very dry curing season. Kentucky’s tobacco production is forecast by USDA to be 10% lower in 2022 with burley production down 21%. Dark fire-cured production rebounded nearly 9% as a major buyer increased contract volumes by more than 50%, following an abrupt cut two years ago. Dark air production was relatively flat, while cigar tobacco acres declined.

Demand for U.S. burley continues to fall as less expensive foreign leaf has induced U.S. burley exports to plummet while the burley import share remains relatively high. After a year of fairly stable cigarette sales in 2020, U.S. cigarette consumption declines accelerated in 2021 and 2022, with annual sales volumes down by more than 7% --far exceeding annual pre-COVID declines of 3 to 4%. Alternatively, dark tobacco demand continues to benefit from stable smokeless tobacco sales coupled with virtually non-existent foreign competition. Contract prices for burley were boosted in 2022 to encourage additional production, but early marketing prices in the $2.20s/lb (vs a $2.07/lb average for the 2021 crop) will be challenged to meet grower satisfaction amidst higher input prices. Prices for later burley marketings will likely fall given quality issues. Dark tobacco prices for the 2022 crop are expected to be 10 to 20 cents/lb higher compared to last year’s $2.78/lb for dark fire-cured and $2.50/lb for dark air-cured. In aggregate, the value of Kentucky’s 2022 tobacco production may total around $250 million compared to $269 million in 2021, with dark tobacco perhaps exceeding one-half of the total value of the state’s tobacco crop.

2023 Outlook

Despite current demand expectations, (especially for burley), Kentucky farmers will have an opportunity once again to increase acreage in 2023 due to tight supplies.  However, the ultimate outcome will depend on contract prices and profit opportunities from alternative ag enterprises. The H2A wage rate is forecast to increase from $13.89/hour to $14.26/hour, putting additional upward pressure on production costs amidst stagnant yields.  In reality without improved profit expectations, attrition in the number of farms growing tobacco in Kentucky will likely continue to evolve in 2023, which will create challenges for tobacco companies attempting to secure a boost in additional leaf inventories.   

2022 Situation

Input costs were up sharply for most specialty crops, especially labor, fertilizer, and chemicals.  Strong local wholesale, auction, and direct markets and expansion of controlled environment production, however, will lead to higher cash receipts for 2022.  These revenues are projected to be at least $20 million for fruit, $45 million for vegetable, and $118 million for greenhouse and nursery crops in Kentucky.

2023 Outlook

Strong competitive pressures will continue from outside of the U.S. in the produce market. While Kentucky growers benefit from strong local demand, and strong local prices may remain in direct markets, import supply will continue to rise. Labor costs are a big constraint for growth in this sector. High costs of other key production inputs are expected to continue, putting pressure on grower margins. New capital-intensive greenhouse production will continue to face both production cost and import market challenges in 2023.

The outlook for 2023 in Kentucky will continue to hinge on strong local demand for specialty crops as markets for many specialty crops trend downward nationally. Recovering restaurants and other wholesale channels, including the produce auctions, will help support continued strong markets in direct-to-consumer platforms. Garden center demand in Kentucky will be expected to keep pace with the strong growth nationally, but may be especially adversely impacted by continued high inflation.

2022 Situation & 2023 Outlook

2022 was a highly dynamic year for the forest sector. While the overall economic contribution is estimated to be unchanged from 2021 at $13 billion, individual commodities varied considerably over the year. Prices paid for all species of lumber logs increased throughout 2021, in some cases to unprecedented levels. These levels were maintained into 2022 during the first and second quarters. However, the third quarter saw a rapid decline in price across all species of lumber logs to an extent where all the gains of 2021 were lost. Across all species there was a 51% loss in value in the third and fourth quarters of 2022. Fortunately, other log products including cross tie logs, stave logs for cooperage and pulpwood have maintained more of their value throughout 2022. 2023 prices paid for lumber logs are expected to stabilize, however ultimately timber values will follow the overall economy and especially housing starts which are currently on the decline.   

Impact of Net Farm Incomes on Kentucky Commercial Crop Farms

Continued recovery of farm profitability over the past five put the average Kentucky crop farm in a very sound financial position coming into 2022. High commodity prices are pushing average net farm income even higher this year, in spite of lower yields and higher input prices. Outlook for 2023 is just as bright.

This is based on data from commercial-sized crop farms participating in the Kentucky Farm Business (KFBM) management program. For 2022, the average farm cropped 2,375 acres and employed 4 full-time employees. Net farm income reached an all-time high over $871,000. Even adjusted for inflation this figure breaks the previous high set in 2013.

Balance sheets for these farms are very strong. Long-term financial health is very solvent with a debt-to-asset ratio of 28%. A ratio of less than 30% is considered healthy for a crop farm. High and steady land values have kept the ratio low and solvency strong for over ten years.

Financial health in the short run is measured by the working capital ratio. It compares the amount of current assets not needed to pay principal due in the next year to the amount of current liabilities. A healthy ratio is 2:1 or more. The average farm has rebuilt working capital to a financially healthy 2.5:1 ratio at the first of 2022. Farmers have used this working capital to pay for inputs and reduce current liabilities.

Conditions during the last decade seriously eroded farm financial health. Yields and prices in the 20’s have given Kentucky crop farm managers the opportunity to rebuild the farm’s financial health from farm profits.

Even farms in the lower third of income are experiencing profits. This follows six years where the average crop farm in the lower third of net farm income did not make a profit. Debt-to-asset ratios for this group have improved to 30% for the last two years. Working capital has also improved to 2.1:1 coming into 2022. Net farm income projections for 2022 and 2023 suggest that these farm mangers should have the opportunity to further strengthen farm financial health.

Average family living expense was $92,000. This is up sharply as a result of increased spending after COVID-19 and inflation. Spending is close to the national family average. Family living expense is expected to continue to rise with increasing profitability and continued inflation, in line with the general economy.

Agriculture, like many industries, has been challenged by a multitude of factors over the past 18 months including a relentless and ongoing global health pandemic, an initial meltdown of the global economy, major supply chain disruptions, continued trade tension, soaring inflation amidst higher energy, labor, and food costs, labor supply challenges, and major adverse weather events. Despite these impactful events, the U.S. farm economy has not only survived, but experienced remarkable growth, initially on the heels of significant government financial support, followed by strong export gains, impressive crop yields, and a growing global demand for meat products. In 2020, USDA claims that net farm income increased nearly 20%, with government payments comprising close to one-half of net farm income. For 2021, USDA is projecting an additional 23% gain in net farm income, which, if realized, would be the second-highest net farm income on record and the sixth-highest over the past fifty years when adjusted for inflation.

Direct government payments to U.S. farmers totaled a record $45.7 billion in 2020. Most of the payments were from the Coronavirus Food Assistance Program (CFAP) to assist farmers from COVID-19-induced price declines and the Market Facilitation Program (MFP) to compensate farmers from losses evolving from the trade wars. Government farm payments are projected to decline 40% in 2021, but are still projected by USDA to comprise around one-quarter of net farm income.

Accounting for both higher commodity prices and larger trade volumes, U.S. farm exports will likely end 2021 at record high levels of approximately $175 billion, following surprising growth in 2020. While most of the gains in U.S. ag exports in 2020 could be attributed to one market –China, and a few commodities – primarily corn, soybeans, and pork, export gains in 2021 were strong among most all of our major trading partners and across most ag commodities. Through October 2021, the value of U.S. corn exports has more than doubled, while U.S. beef exports are up 38%, forest products +28%, poultry +24%, dairy 18%, wheat +17%, soybeans +10%, and pork +8%. China remains the leading export market for U.S. agriculture, but the ag sector experienced strong demand in 2021 for U.S. ag commodities and food products from import markets like Mexico, Canada, Japan, and several other nations in Southeast Asia.

As a result of an improving farm economy, the U.S. farm balance reversed some concerning issues that surfaced from the economic downturn experienced in 2015-2019. Higher net farm income and continued low interest rates boosted land and other asset values in 2021, leading to improvements in many financial ratios, along with strengthening working capital, liquidity, and cash flow levels.

As for Kentucky, impressive grain crop yields, higher crop/livestock prices, and a strong equine market this past year are projected to boost Kentucky ag cash receipts to an estimated $6.75 billion in 2021, surpassing the record-high $6.5 billion set in 2014 and considerably higher than the $5.5 billion average over the past five years (2016-2020). Potential record-high state yields for corn and soybeans, coupled with strong market prices will enable these grain crops to rival poultry as Kentucky’s leading ag commodity for 2021.

Similar to the national trend, the government payments to Kentucky farmers will be significantly lower in 2021 versus 2020 when they approached nearly $700 million compared to an average of $183 million from 2015-2019. Despite much lower government payments and increased production costs, higher cash receipts will likely enable Kentucky net farm income to approach $2.5 billion in 2021, compared to averaging $1.7 billion for the proceeding five-year period.

U.S./Kentucky farmers will enter 2022 with commodity prices much higher than those recorded prior to the Covid-19 pandemic. Despite favorable commodity prices, the main concern confronting farmers as they begin planning for 2022 will be escalating farm input prices. After multiple years of relatively modest changes in farm input costs, farmers are bracing for the potential of double-digit percentage hikes in their overall cost of production, with much higher fuel, feed and fertilizer prices anticipated. Labor costs and supplies remain troublesome for not only farmers, but throughout the entire ag/food supply chain as well as the rest of the economy. Interest rates are still expected to remain relatively low for farmers in 2022, however, spiraling inflation may induce the Federal Reserve to take action to restrict money supplies and consequently boost interest rates to cool down inflation.

U.S. ag trade is expected to remain fairly robust in 2022, but this depends a lot on crop development in South America, how China responds following the ending of the two-year Phase I trade agreement signed in January 2020, and the outcome of the global economy amidst on-going COVID concerns and supply chain issues. In aggregate, the U.S./Kentucky farm economy still has a positive outlook for 2022, but profit margins are expected to narrow compared to 2021. Consequently, farmers will be advised to monitor input and commodity markets closely in developing purchasing and marketing strategies amidst this turbulent, volatile, and uncertain farm economy.

2021 Situation 

Beef production was on track to reach its peak in 2020, but COVID-related processing challenges pushed some of that production in 2021. So, the supply of slaughter cattle was high for the first half of the year and fed cattle prices struggled. Finally in the fall, feedlots appeared to get more current and fed cattle prices rallied sharply. Beef export pace was also very swift for the year and should set an annual record by the time we turn the page on 2021.

In Kentucky, heavy feeder cattle prices improved a great deal through summer and fall and have been running over $10 per cwt above 2020 levels since July. The calf market has been the slowest to show improvement, but winter is always a challenging time to build momentum in calf markets. At the time of this writing (early December 2021), spring CME© feeder cattle futures contracts were trading in the upper $160’s. Despite the high feed prices, those spring price levels suggest potential for winter backgrounding programs at current calf prices.

2022 Outlook

While COVID and the macroeconomy remain wildcards going forward, there is reason for optimism in 2022. It appears that we have moved through the largest fed cattle supplies of this cattle cycle and the cowherd continues to get smaller. Based on beef cow slaughter and heifer retention estimates, beef cow inventory should be down around 2% for the year. It is likely that we will see our best spring calf market since 2016. At the same time, feedlot preference will still be to place heavier cattle given high feed prices. This will keep value of gain high and should lead to good returns for growing operations, especially summer stockers. 

2021 Situation 

Significant recovery was seen in broiler values, beginning in the fall of 2020 and continuing into 2021. Price improvement was seen across most all products, notably for breasts and wings, with wings reaching record highs. Year over year, the composite broiler value is up by more than 35%. Production for the year is likely going to be about 1% higher, which is less than normal for the broiler sector. The ice storm across the Southern region in February, and another sizeable decrease in production around Memorial Day, partially explain the slower than normal growth for the year. Both these impacts are clearly visible on the broiler production chart.

2022 Outlook

The price improvement that has been seen across the broiler sector has worked to strengthen the overall industry and is likely to remain steady in 2022. However, it does appear that production growth in the sector will be more moderate next year, comparable to what was seen in 2021. It is likely that some of this may be labor related as 2-3% annual increases in broiler production have been common in recent years. Regardless, the industry seems stable and opportunities for Kentucky producers will remain.

2021 Situation 

Equine markets made a very impressive recovery in 2021, far exceeding most expectations early in the year. After being down 30% in 2020, annual sales receipts at Keeneland rose by 35% for the year. Given the COVID impacts on markets in 2020, it is likely that 2019 is a better year for comparison. Compared to two years ago, this year’s sales levels were off just 3.5% on considerably fewer horses being sold. It is worth noting that the sale average was higher in both the September yearling and November breeding stock sales than in 2019.

2022 Outlook

While it would be unrealistic to expect another year-over-year increase in magnitude like was seen in 2021, it certainly appears that equine markets are on firm footing. General recovery from COVID should continue, as should the impact of historical horse race (HHR) gaming on purses, which likely impacts values. These same factors should also impact stud fees in the upcoming season, which are another significant contributor to Kentucky equine receipts. While strong stud fees may be partially offset by a slight decrease in the number of mares bred in 2022, a moderate increase in equine receipts at the state level would appear likely.

2021 Situation 

Dairy cow inventory was growing as we entered 2021 and didn’t start to decrease until May. So, milk production was up for the year, especially during the second quarter. The U.S. All Milk price should average a little over $18 per cwt, which is not far from 2020 levels. Prices have been less volatile and the relationship between class III and class IV milk has been more normal. But, the story of 2021 is really less about milk price and more about feed costs, which are impacting dairy margins. To put this in perspective, from August 2020 to August 2021, the estimated ration cost for the Dairy Margin Coverage (DMC) program increased by $4.48 per cwt of milk produced.

2022 Outlook

Dairy cow numbers in 2022 should be comparable to what was seen in 2021. However, productivity gains are likely to result in about a 1% increase in milk production across the U.S. Kentucky farm level milk prices should average higher for the year in 2022, exceeding $20. However, feed prices are likely to continue to be the lead story. With feed prices at current levels, $20 milk will feel more like $16 milk and profitability concerns will remain, especially for smaller scale dairy operations.

2021 Situation 

In a lot of ways, 2021 looks like the 2020 that was expected for the hog market, had it not been for COVID-19. Production was actually down from 2020, but demand was strong, resulting in the strongest hog market we had seen since 2014. Eastern Corn Belt market formula hog prices will average in the low $90’s for the year, on a carcass weight basis, and were above $100 per cwt from April to August. Like all of the livestock sector, profitability was greatly impacted by feed costs, making overall price levels a bit misleading without that context. Expansion of contract hog production in Kentucky continued to grow.

2022 Outlook

Pork production for 2022 should be comparable to 2021. However, it continues to appear that China is rebuilding their hog inventory. Pork exports to China were down 37% for the first nine month of 2021, compared to the same period in 2020, and that is likely to continue into 2022. Hog prices should moderate, but remain at relatively high levels, from a historical perspective. But, as with all livestock species, feed prices for the coming year will reduce profitability.

2021 Situation 

Total production for the 2021 corn crop is projected to be 5% higher than the five-year average.  Corn use for ethanol production is projected to be back at the five-year average after dipping in 2020 due to COVID.  Livestock feed use is projected to increase 2%, and exports are projected to increase 10% compared to the five-year average.  Given these changes and that initial stocks started out the marketing year at low levels, the USDA is projecting a 24% decrease ending stocks over the five-year average, pushing the expected US on-farm corn price up to $5.45/bu for the 2021-22 marketing year.  In Kentucky, corn prices are $5.50-5.75/bu as of late-November, with forward contract prices jumping to $5.65-5.90/bu this winter in our better markets.  

2022 Outlook 

2022 harvest contract corn futures are up $1.50/bu from expectations a year ago, resulting in forward contract pricing of $5.00-5.30/bu for the 2022 new crop delivery.  This would be an increase of approximately $260/acre for 175 bu/acre corn crop.  Fertilizer prices have increased dramatically for the 2022 crop, resulting in approximately $100-125/acre increase over fertilizer prices for the 2021 corn crop.  

2021 Situation 

Total production for the 2021 soybean crop is projected to be 6% higher than the five-year average.  U.S. soybean use is projected to be 6% higher than the five-year average, while soybean exports are projected to be 3% higher than the five-year average.  The effect of these changes combined with low levels of initial stocks would be a 30% drop in soybean ending stocks over the 5-year average, pushing the expected U.S. on-farm soybean price up to $12.10/bu for the 2021-22 marketing year.  In Kentucky, soybean prices are $12.20-12.45/bu as of late-November, with forward contract prices $12.25-12.50/bu this winter in our better markets.  

2022 Outlook 

2022 harvest contract soybean futures are up $2.35/bu from expectations a year ago, resulting in forward contract pricing of $11.70-12.00/bu for the 2022 new crop delivery.  This would be an increase of approximately $130/acre for 55 bu/acre soybean crop.  Fertilizer prices are up approximately $20-30/acre increase over prices for the 2021 soybean crop.  

2021 Situation 

Soft Red Winter Wheat production in 2021 increased 26% compared to the 5-year average.  However, when combined with extremely low initial stocks, the resulting available supply going into the marketing year is down 3% from the 5-year average.  Domestic use is projected to be up 12% and exports up 28%, for a total use increase of 17% over the 5-year average.  Combined with the available supply, the resulting ending stocks are projected to be down 42% compared to the 5-year average.  This has led to steep increases in price.  In Kentucky, cash prices as of late-November are around $7.50-7.90/bu.  Forward contract new crop prices (June/July) for 2022 in Kentucky are around $7.40-7.75/bu.

2022 Outlook 

2022 harvest contract wheat futures are up $2.00/bu from expectations a year ago, resulting in forward contract pricing of $7.40-7.75/bu for the 2022 new crop delivery.  This would be an increase of approximately $150/acre for 75 bu/acre wheat crop.  

2021 Situation 

Kentucky’s tobacco production is forecast by USDA to be 5% higher in 2021 on the heels of increased dark tobacco production.  Burley production (down 5% in Kentucky and 4% nationally) was plagued with excessive rainfall in certain areas continuing the trend of disappointing yields in recent years.  Demand for U.S. burley continues to fall as less expensive foreign leaf has induced U.S. burley exports to plummet while the burley import share continues to rise.  After a year of fairly stable cigarette sales in 2020, U.S. cigarette consumption declines have accelerated in 2021 (down 7% as of late November), exceeding annual pre-COVID declines. Alternatively, dark tobacco demand continues to benefit from stable smokeless tobacco sales coupled with virtually non-existent foreign competition. Plus, the quality of the 2021 dark tobacco crop is described as “one of the best in years.” Prices for the smaller 2021 burley crop may average around $2.05/lb (vs $2.00/lb in 2020), with a fairly wide range of prices offered by the various tobacco companies. Dark tobacco prices for the 2021 crop remained relatively stable --mid $2.40s for dark air and mid $2.70s for dark fire-cured.  In aggregate, the value of Kentucky tobacco production will total around $250 million compared to averaging $295 million over the past three years, with dark tobacco approaching one-half of the total value of the state’s tobacco crop.

2022 Outlook

Declining profit margins, labor challenges, and GAP requirements will likely continue to erode the grower base, but the decline in the number of farms growing tobacco may begin to stabilize in 2022.  Despite declining demand, burley growers may not see much change in contract volume for 2022 coming off an anticipated short 2021 crop. The dark tobacco sector has made some supply adjustments in recent years to establish a more manageable supply/demand balance. Thus, the outcome for 2022 contract volume for dark tobacco growers will depend greatly on whether the relatively large 2021 crop forecast by USDA (72.3 million lbs nationally, or a 19% increase from 2020) actually materializes and company expectations of how future product sales may change amidst continued uncertainty on regulations, taxes, and emerging alternative tobacco product sales.   

2021 Situation 

The hemp industry continues to struggle to find its balance in the agricultural economy.  As expected, the industry is still working through hemp inventories produced in 2019 and 2020, which have continued to suppress farm gate prices and significantly limited producers’ interest in growing the crop.  In Kentucky, 1,675 acres of hemp were harvested in 2021 representing a 63% decrease over 2020. This decrease is consistent with hemp acreages across the U.S.  Hemp production destined for the CBD market continues to dominate with 90% of Kentucky’s 2021 acres grown for this purpose.  Seed/grain production decreased from 4% to 2.5% from 2020 to 2021 while hemp grown for fiber almost doubled, from 4% to 7.5%, over the same period.   

2022 Outlook

Uncertainty around regulations, specifically THC content, approval for use in pet and livestock feed, inconsistent smokeable laws between states, and FDA approval continue to hinder growth in the hemp sector. Some processors continue to explore new marketing channels by focusing on cannabinoids other than CBD (i.e. CBG, CBN, etc.) or other THC attributes (i.e. delta 8,10).  However, significant increases in hemp production are not expected until current stocks are processed (or destroyed because of storage issues) or demand shifts.  Significant financial losses incurred by many hemp producers in the previous years will likely continue to deter production until market economics stabilize.  Hemp continues to be a small sector of agriculture that still has a ways to go before stability is realized.  In the meantime, hemp production continues to be risky and rife with uncertainty.    

2021 Situation 

Higher prices and good yields in specialty crops, which includes produce and nursery, will likely allow the sector to exceed the record revenues of 2020, but rising input costs will limit profitability and sector growth. 2021 cash receipts are expected to be at least $16 million for fruit, $44 million for vegetables and $118 million for nursery and greenhouse production. 

2022 Outlook

Strong competitive pressures will continue from outside of the U.S. in the produce market. While Kentucky growers benefit from strong local demand, and strong local prices may remain in direct markets, import supply will continue to rise. Labor costs are a big constraint for this sector. Covid impacts have been challenging for a sector that typically has 30-40% of its production costs connected to labor.

The outlook for 2022 will continue to hinge on strong demand for local specialty crops. Recovering restaurants and other wholesale channels, including the produce auctions, will help support continued strong markets in direct-to-consumer platforms. Garden center demand in Kentucky will be expected to keep pace with the strong growth nationally, which includes a strong home improvement sector and consumer spending.

2021 Situation 

2021 saw a sharp recovery in demand for hardwood timber and associated products compared to the soft markets experienced in 2019 and 2020. The uptick in domestic demand for wood products that caused substantial price increases in softwood construction products finally reached hardwood markets.

Kentucky has benefited as prices for Kentucky’s lumber have climbed dramatically in the first 6 months and remained stable throughout the year. Demand has outstripped supply across all species resulting in a 71% increase in hardwood lumber prices. The figure shows the unprecedented increase in prices for important species from November 2020 to November 2021. The increase in lumber price has direct bearing upon log prices resulting in a sellers markets for timber with landowners experiencing increases in stumpage value across the commonwealth.

2022 Outlook

Current lumber and timber demand will continue into 2022. Relatively high prices for tie logs used in manufacturing railway cross-ties, stave logs for barrel production, along with lumber logs is expected to continue resulting in higher prices paid for hardwood timber especially white oak, black walnut and yellow-poplar.

The uptick in demand resulted in an estimated overall economic contribution from the forest sector to Kentucky’s economy slightly shy of 14 billion dollars in 2021 with projected improvement in 2022. Exports are also expected to increase as the pandemic wanes and tariffs on wood exports to China are no longer in play. Unfortunately, historical pulpwood markets in southeast and western Kentucky have evaporated with the closing or restructuring of paper mills in Kentucky and Tennessee. While supply chain issues and labor shortages will continue to plague the industry, domestic demand should remain high, providing opportunities for landowners selling timber in 2022.

Following several years of depressed commodity prices, trade wars, and challenging financial conditions, 2020 was setting up to be a critical year for the U.S. agricultural economy. On the verge of completion of three major trade agreements (China, USMCA, and Japan), a slowing, but growing world economy, and continued low production expenses, there was some optimism among farmers and ag markets entering 2020 … then COVID-19 hit. Like most businesses, agriculture did not escape the gyrations caused by COVID-19.  Plant shutdowns, restaurant/school closings, supply chain disruptions, panic buying, labor uncertainties, and continued trade disputes, were just a few items that led to a wild ride for the ag economy with prices for most farm commodities falling 10-25% or more during the second quarter of 2020.

In response to this crisis, Congress debated various economic stimulus packages, which included funding for agriculture. In total, USDA is projecting that U.S. farmers will receive $46.5 billion of government assistance from two rounds of Coronavirus Food Assistance Program (CFAP) packages, the completion of 2019 Market Facilitation Program (MFP) payments, the Paycheck Protection Program (PPP) and regular farm bill programs (PLC, ARC, conservation) which may account for nearly 40%f of net farm income in 2020. Currently, USDA is forecasting that 2020 Net Farm Income will total $119.6 billion, 43.1% above 2019 levels.  Adjusted for inflation, U.S. net farm income will be at its highest level since 2014 and well above the 20 year average. Cash receipts are projected to fall slightly, but more than offset by lower production expenses and the escalation of government payments.  Receipts have been aided in recent months by an improvement in crop prices, driven by stronger year-end export sales. Despite a lot of volatile factors, U.S. ag exports will likely end the year around $140 billion – relatively flat compared to the past three years after setting a record level of nearly $150 billion in 2014. Alternatively, the value of U.S. ag imports continues to increase causing the U.S. to flirt with an ag trade deficit for the first time since 1959. 

U.S. ag exports to our largest trading partner, Canada, will be virtually flat in 2020, while exports to Mexico could end the year down 10% or more as COVID-19 has taken its toll on the Mexican economy. Most of the trade optimism for U.S. ag early this year focused on the U.S./China Phase One trade agreement given their commitment to import $36.5 billion of U.S. ag products in 2020. This compares to a record level of $25.9 billion of U.S. ag exports to China in 2012, which fell to $9.1 billion in 2018. Through September, the U.S. has shipped $10.7 billion (up 37% in 2020), with strong grain, pork and beef sales. Despite robust export activity late in the year, U.S. ag exports to China are still projected to fall below Phase One targeted levels.  Export sales to Japan and the EU also trended lower in 2020. 

The financial condition of the average commercial-sized Kentucky crop farm began 2020 in much better financial shape than in previous years.  This is part of a three-year trend of increasing net farm income that has enabled these farms to build working capital.  The projected increase in net farm income for 2020 will provide an opportunity for farmers to further improve their financial condition in face of uncertainty in 2021.  Net farm income is projected to be higher because of higher-than-normal yields, a sharp rise in commodity prices at the end of harvest, and large government supplemental payments.  Observations are based on commercial-size crop farms participating in the Kentucky Farm Business Management program. 

Cattle

Despite optimism coming into 2020, COVID’s demand and supply chain disruptions rocked cattle markets, especially in spring and summer. The backlog of fed cattle that was created by lower spring harvest levels pressured prices all through the marketing chain. Heavy feeder cattle prices decreased by more than $25 per cwt from January to April, but did manage to gain a good portion of that back by early fall. Calf markets failed to see their typical spring run-up and fall prices have been very close to 2019 levels. Cull cow and bull markets were a relative bright spot as less harvest volume impacts were seen in those markets and ground beef demand benefited from increased at-home consumption. Assuming that COVID impacts lessen in 2021, improvements should be seen in both domestic and international beef demand. This, combined with a smaller calf crop should pave the way for price some improvement next year. 550 lb steer calves are likely to average in the $160’s by spring and should hold the $140’s in the fall on a state average basis, with groups and higher quality calves selling at considerable premiums.

Poultry

Kentucky’s poultry sector has generally continued to grow in size for many years and this was again the case coming in to 2020. But, poultry markets were impacted by COVID and wholesale broiler prices will likely be down nearly 20% for the year. Interestingly, egg prices have been higher for 2020 and rose considerably during the early stages of the pandemic. In reality, the vast majority of Kentucky’s contract poultry producers are somewhat isolated from these market impacts. However, they are impacted by increases in time between flocks as integrators adjust to market signals, which was the case for many growers this year. While 2020 brought challenges, growth is likely to continue over time, and 2021 should be a much improved year for the sector.

Hogs

With general optimism about trade, and continued concern over African Swine Fever in China, the hog industry came into 2020 expecting a solid year. USDA inventory estimates also suggested increased hog numbers in the Commonwealth for 2020, with much of the increase in contract integrated operations. Eastern Cornbelt hog prices mirrored 2019 for the first three months of the year before COVID’s impact on demand and processing took its toll. Prices fell by more than 40% from March to July and 2020 actually saw seasonal lows around the time the hog market typically makes its highs. However, prices have rallied since summer and set up for a much better 4th quarter. While reports continue to suggest China is rebuilding hog numbers, potential for strong exports and improved domestic demand exist for 2021, and hog producers should see a much better year. Eastern Cornbelt hog prices should start 2021 in the $60’s on a carcass weight basis, but find the $70’s by summer.

Equine

After exceeding $1 billion in both 2018 and 2019, Kentucky farm level equine receipts will drop considerably in 2020. Both the number of horses sold and median prices were down in yearling and breeding stock sales. While the timing of COVID likely had limited impact on stud fees in 2020, stud fees are likely to decline on average in 2021. It is almost a certainty that sale values will continue to be depressed into next year as well. While the market for upper-tier horses has the potential to stay relatively strong, impacts are likely to be felt across the vast majority of the equine market. When sales value, stud fees, and continued declines in the number of mares bred are considered, KY equine receipts will likely be even lower in 2021.

Dairy

Kentucky came into 2020 with another decrease in dairy cow numbers and dairy producers have dealt with an extremely volatile market. The US All Milk price for the first nine months of the year ranged from a low of $13.60 per cwt in May to a high of $20.50 in July. Much of the volatility has been driven by large swings in cheese prices, which have considerable impact on farm level milk prices. Additionally, the 2019 change in the way that the base skim milk pricing factor was calculated, combined with de-pooling in response to higher class III prices, greatly impacted producer price differentials for much of the year. Producers have received some help in the form of Coronavirus Food Assistance Program (CFAP) payments and the Dairy Margin Coverage (DMC) program.  But, increasing feed prices have also cut into returns this fall. Looking ahead, indicators suggest that the dairy herd is growing at the national level, which means increased production is likely for 2021. Given this, demand for dairy products will have to improve for producers to see widespread price improvement in the coming year. A farm level milk price range of $17-19 per cwt would seem realistic for 2021.

Corn

Total production for the 2020 corn crop is projected to be just 2% higher than the five-year average. Corn use for ethanol production is projected to be 5% lower than the five-year average, but is roughly balanced by a projected 5% increase in livestock feed use.  The biggest change expected for the 2020-21 marketing year is a significant increase in corn exports, projected to be 27% higher than the five-year average. The combined affect would be an 18% drop in corn ending stocks over the five-year average, pushing the expected U.S. on-farm corn price up to $4.00/bu for the 2020-21 marketing year, compared to the five-year average of $3.50/bu. This would be the highest average on-farm corn price seen since 2013. Projected corn prices for the 2021-22 marketing year also look strong, with U.S. on-farm prices in the $3.85-3.95/bu range. This would be about $.40/bu higher than the five-year average. In Kentucky, corn prices are $3.70-3.90/bu as of mid-November, with forward contracting prices jumping to $4.10-4.40/bu this winter in our better markets.  

Soybeans

Total production for the 2020 soybean crop is projected to be just 1% higher than the five-year average. U.S. soybean use are projected to be 8% higher than the five-year average, while soybean exports are projected to be 14% higher than the five-year average. The combined effect of this increased usage would be a 60% drop in soybean ending stocks over the 5-year average, pushing the expected U.S. on-farm soybean price up to $10.40/bu for the 2020-21 marketing year, compared to the five-year average of $8.96/bu.  As with corn, this would be the highest average on-farm soybean price seen since 2013. Projected soybean prices for the 2021-22 marketing year also look strong.  Futures prices for the 2021 crop are roughly $1.00/bu below the 2020 crop, and would likely result in U.S. on-farm prices of around $10/bu for the 2021-22 crop marketing year.  Although lower than projected for 2020-21, this would be over $1.00/bu higher than the five-year soybean price average. In Kentucky, soybean prices are $10.80-11.10/bu as of mid-November, with forward contracting prices jumping to $11.20-11.90/bu this winter in our better markets.  

Wheat

Soft Red Winter Wheat production in 2020 increased 11% from 2019 but is still 13% below the 5-year average. Combined with low initial stocks, the resulting available supply going into the marketing year is down 24% from the 5-year average. Domestic use is projected to be down 7% and exports down 28%, for a total use reduction of 14% over the 5-year average. However, given that the available supply is down 24%, the resulting ending stocks are projected to be only 40% of the 5-year average. This has led to steep increases in price, up around $1.00/bu since June. In Kentucky, cash prices as of mid-November and forward contracting prices through the winter are both around $6/bu, prices that have not been observed in years. Forward contract new crop prices (June/July) for 2021 in Kentucky are also around $6/bu.  

Tobacco

Kentucky’s tobacco sector continued to shrink in 2020 amidst contract volume reductions in response to slumping export markets, imports, lower cigarette sales, and a surplus of dark tobacco stocks. Tobacco acres are projected to be down around 15% in 2020 with yields highly variable across the state.  Even with slightly higher market prices, the value of Kentucky tobacco production may fall from $268 million in 2019 to around $225 to $235 million versus averaging $311 million over the past five years. Kentucky tobacco growers did benefit from being a part of CFAP payments, expected to total more than $20 million, along with an expansion in Connecticut broadleaf (cigar) tobacco acres. The reduction in domestic cigarette sales moderated in 2020, snuff consumption was stable, while the growth in vaping products moderated. Despite anticipated lower tobacco product sales and sluggish exports, contract volumes for the coming year may remain relatively stable or could actually increase for some individual growers as leaf stocks are ending 2020 fairly tight and frustrated growers exit. Profit margins will likely continue to be squeezed with higher labor costs, GAP requirements, limited yield gains, and stagnant leaf prices, resulting in continued concentration among growers.  Uncertainty on issues such as restricting nicotine levels/flavorings, taxes, immigration, trade, and emerging non-combustible tobacco products will continue to dampen the outlook for the remaining Kentucky tobacco growers.

Hemp

Kentucky’s hemp industry took a major pullback in 2020 in response to experiences “learned” from the 2019 crop, characterized by a dramatic drop in prices, unsold stocks, limited processing capacity, regulatory uncertainty, and overall production/marketing frustrations. KDA reported farm sales totaling $51.3 million in 2019, up from $17.8 million in 2018 and $7.5 million in 2017. While the number of grower licenses issued in Kentucky remained stable (960 in 2020 vs 978 in 2019) around 160 licensees indicated that they would not plant a crop in 2020 in hopes of finding a buyer for their unsold inventory from previous years.  Licensed hemp acres in Kentucky for 2020 totaled 32,000 acres (following a record high 60,000 acres in 2019), with planted acres reportedly around 5,000 (95% for CBD). Nationally, licensed hemp acres fell an estimated 20-30% in 2020 (vs over 500,000 licensed (250,000 planted) acres in 2019, while the number of hemp licenses issued actually increased. Despite the dramatic cut in acres, a glut of stocks remains with supply chain challenges and company bankruptcies.  Given CBD challenges, there appears to be a growing interest nationally in hemp grain and fiber production, but increasing corn/soy prices and processing issues may hinder expansion. The downward spiral in farm-level prices has moderated in recent months, with Kentucky hemp biomass price averaging $0.63/%CBD, conventional grain prices, $0.45-$0.55/lb, organic grain prices, $1.00-$1.25)/lb, and fiber, $0.05-$0.12/lb. Low price expectations in conjunction with unsold stocks, market and regulatory uncertainty, and minimal infrastructure development will likely keep acreage and enthusiasm down in 2021 as the emerging industry works off excess supplies and adjusts to changing market/regulatory conditions.

Fruits, Vegetables, Greenhouse

Horticulture markets in Kentucky are made up of many pieces and cash receipts, especially in the current environment, are difficult to monitor. Costs are up, especially labor and Covid compliance. But revenues are also up for the most part – although some relatively wide swings in a number of our traditional direct markets. Direct to restaurant and school sales were down substantially. Farm markets sales were up a little, with CSA and agritourism sales up significantly. However, wineries were hit hard with limits to on-site tasting. Auctions were up considerably, approximately 25% YOY. Garden center sales were higher with retail nursery sales noted to be around 20% higher nationally with wholesale nursery up slightly less. Although early for final 2020 estimates, total produce and nursery cash receipts will likely be at record levels for Kentucky, approaching $160 million.

Forestry

Timber and lumber markets improved in 2020 compared to 2018-2019. While the removal of tariffs on hardwood exports into China has increased log and lumber prices for red oak and white oak continues to be high demand for barrels and other products, the health of individual industries varies considerably. One key issue is the shortage of logs. This is a consequence of low timber prices in 2018-19 that resulted in a reduction in timber sales. Ultimately, this has played a role in decreasing logging capacity, reducing log supply and log inventories at mills going into winter. The increasing demand for logs to satisfy lumber and other wood product orders and the limited supply of logs has created a seller’s market for timber with overall stumpage prices increasing, a trend which is expected to continue into 2021.  On a negative note, the recent and unexpected closure of a pulp and paper facility in eastern TN (Kingsport) and the continued lack of strong pulpwood market in western Kentucky negatively impacts landowners’ timber value and the ability to perform good forest management. In summary, the forestry sector contributed $12.9 billion in total output to Kentucky’s economy and we expect this contribution to remain steady with stumpage values continuing to improve in 2021 providing opportunities for landowners to sell timber. However, we remain concerned over logging capacity, the long-term health of small mill operations, and lack of markets for low grade pulpwood across the state.

Contributing authors: Dr. Jeff Stringer, Chad Niman, Billy Thomas, Bobby Ammerman, Dr. Thomas Ochuodho of the Department of Forestry and Natural Resources. 

U.S. Agricultural Economy

Despite weather and trade challenges, the USDA is forecasting that U.S. net farm income will total $92.5 billion in 2019, up 10.2% from last year, but still 25% below the record high of $123.7 billion in 2013. Adjusted for inflation, 2019 U.S. net farm income has rebounded 10.8% over the 2014-2018 average. Ag cash receipts and production expenses remained relatively stable in 2019. The major factor boosting net farm income in 2019 was an $8.8 billion (64%) increase in direct government payments, primarily in response to two series of Market Facilitation Program (MFP) payments offered to support farmers amidst trade disruptions adversely impacting farm prices and income. Direct government payments coupled with crop insurance indemnities, accounted for 31% of U.S. net farm income this year. Without government assistance, U.S. net farm income would have declined to $63.6 billion (-24.3%) in 2019.

 
Export data through September reveals that U.S. ag exports will likely decline around 4% in 2019 in response to a higher valued U.S. dollar, competition from other markets with abundant export supplies, along with fallout from the on-going trade disruptions. U.S. meat exports remained relatively strong in 2019, especially U.S. pork, which was boosted by the outbreak of African Swine Fever (ASF) in China. Soybean exports to China exhibited some recovery from a dismal 2018, but were limited in response to continued tariffs and reduced feed demand due to ASF. U.S. ag imports increased to record levels, causing U.S. agriculture to flirt with a trade deficit for the first time since the 1950s.
Amidst a prolonged dip in the farm economy, ag lenders are observing financial stress among some of their highly leveraged customers. While U.S. farm asset levels remained relatively stable, farm debt hit record levels in 2019, causing a reduction in farm equity and working capital to meet short-term debt obligations and sparking an escalation in farm bankruptcies. Unlike during the depressed farm economy of the early 1980s, relatively low interest rates have constrained the damage evolving from the latest downturn by supporting land values and keeping a lid on debt payments and the value of the U.S. dollar.

 
Kentucky’s Agricultural Economy

The University of Kentucky’s Department of Agricultural Economics is forecasting that Kentucky ag cash receipts will total $5.9 billion in 2019, flat from last year’s level, but still well below the record $6.5 billion in 2014. Sales continue to be plagued by relatively low commodity prices, but were aided by better than expected grain yields. Increased corn, wheat, dairy, and hemp receipts offset lower poultry, soybean, cattle, tobacco, and hog receipts. Despite a setback in 2019, poultry will remain Kentucky’s largest ag enterprise, accounting for 21% of projected 2019 sales, followed by equine (18%), corn (14%), soybeans (14%), and cattle (12%). Producers of local produce/meats, value-added agriculture and greenhouse/nursery sales continued to experience growth, but the forestry sector was challenged by adverse trade conditions. Two rounds of MFP payments will likely boost Kentucky direct government payments to more $300 million in 2019, which may allow Kentucky net farm income to exceed $1.8 billion in 2019, compared to averaging $1.6 billion over the past five years.

 
What about 2020? Kentucky ag cash receipts are expected to slightly exceed $6.0 billion in 2020 with poultry, cattle and hogs rebounding from lower 2019 sales, while dairy and tobacco receipts decline. Given global supplies and export prospects, crop prices may not exhibit much improvement in 2020, absent any major weather event. Meat exports are expected to continue to grow in 2020, which will help support livestock prices. Overall, the USDA expects ag exports to increase $4.5 billion (+2.6%) in FY 2020, driven by higher soybean, pork, and dairy exports. U.S. agriculture awaits congressional action on the U.S. Mexico Canadian Agreement (USMCA) to sustain export levels from our top two largest trading partners. The recent trade agreement between the U.S. and Japan should provide some additional long-term benefits for U.S./KY meat exports (and other commodities) by leveling the playing field with major competitors in our fourth largest export market. Of course, the outcome of the trade negotiations with China, lifting of the U.S. poultry ban in China, and the lingering effects of the African Swine Fever loom huge for future U.S/KY grain, meat, and timber exports to China. Future MFP payments remain uncertain, which could constrain any additional rebounding in net farm income in the short-run, unless higher prices and profitable export gains evolve. Despite an expected increase in 2019 net farm income, the U.S./KY farm economy remains very vulnerable if a return to low crop yields, additional trade disruptions, elimination of MFP payments, higher interest rates, and/or decline in asset values materializes.

Cattle—Weather threw everything it had at cattle producers during 2019 including an extremely muddy 1st quarter, severe drought in the fall, and some unseasonably low November temperatures. Due to the rough 2018/2019 winter, we entered spring with a reduced hay supply, which was compounded by drought and early hay feeding this fall. Heavy feeder cattle prices held reasonably well for most of the year, but the calf market just couldn’t seem to gain any traction. The fall calf market saw its lowest level since 2016, with a 550 lb Medium / Large farm 1-2 steer selling in the mid $130’s per cwt. Many signs are pointing to a halt in expansion of the cow-herd, which is exactly what the calf market needs. Expect considerably better prices for calves in spring of 2020 and higher prices for calves in fall than were seen in 2019.

 
Poultry—The overall size of poultry sector continues to grow in Kentucky as more producers enter the business. However, lower broiler prices in 2019 do suggest that receipts may be slightly off 2018 levels. Like all meats, poultry has been negatively impacted by increased production across all proteins, which has led to lower prices. Spillover impacts from African Swine Fever have the potential to greatly impact the poultry markets and the recent announcement that China would resume imports of US poultry definitely opens up some additional doors for 2020.

  
Hogs—Nationally, pork production growth continued in 2019, but prices actually averaged slightly higher than 2018. Eastern Cornbelt hog prices will average just over $60 per cwt on a carcass weight basis for the year. Trade impacts have added a lot of volatility to the hog market with nearly a $30 per cwt spread between the monthly high and low for 2019. Pork production should increase again in 2020, but one simply cannot overstate the significance of African Swine Fever on the Chinese hog sector and pork exports to China have been steadily increasing through the year as a result. Prospects are for significantly better prices in 2020 and this is likely to spill over into all meat markets.

  
Equine—Kentucky equine receipts should increase in 2019 for the third straight year. On a percentage basis, the increase is likely to be smaller than 2018, but another year exceeding $1 billion is very welcome news. A relatively strong economy likely supported both sales and stud fees for 2019. The Keeneland September yearling sale was down slightly from 2018, but total sales were actually higher, largely due to the strength of the November breeding stock sale. Provided economic conditions don’t drastically change, this strength should continue into 2020.

Dary—After a brutal year in 2018 that saw a continued decline in Kentucky dairy numbers, things did improve somewhat during 2019, as US All Milk price increased by a little more than $2 per cwt for the year. Most of the improvement in price occurred in the second half of the year. The year 2019 also marked the first year of the Dairy Margin Coverage (DMC) program, which replaced the Margin Protection Program for Dairy. The new DMC program offers higher coverage levels, lower premiums, and provided margin support January through July.

Corn—U.S. planted and harvested area of corn increased by +.8 and 0.1 million acres, respectively, from 2018. The potential yield of 167 bushels/acre produced a U.S. corn crop totaling 13.6 billion, which is a 759 million bushel reduction from 2018. Total corn supply is projected to be 763 million bushels smaller than last year because of the slightly smaller carry-in. Total corn use is projected to be 559 million bushels smaller due to reduced exports and reduced feed/residual demand. Ending stocks are projected to be trimmed by 204 million bushels, which would support a higher U.S. marketing year average farm price of $3.85/bushel. The USDA currently projects 2020 planted area to increase by 4.6 million acres. Assuming trend yields, the USDA projects corn stocks to increase to over 2.7 billion bushels, with a U.S. MYA farm price of $3.40/bushel.

 
Soybeans—U.S. planted and harvested area of soybeans declined by 12.7 and 12.0 million acres, respectively, from 2018. The potential yield of 46.9 bushels per acre produces a 2019 soybean crop that is 878 million bushels smaller than last year’s crop. Total soybean supply is reduced by 397 million bushels due to the large carry-in. Soybean use is projected to increase slightly from 2018 but is 289 million bushels less than the use for the 2017 crop. Ending stocks are projected almost to be halved from the previous year but are still the second largest in the last decade. The U.S. MYA price is projected to increase to $9.00/bushel. USDA projects 2020 soybean area to increase by 7.5 million acres with stocks to increase to over 530 million bushels.

 
Wheat—U.S. planted and harvested wheat are decreased by 2.6 and 2.4 million acres, respectively, from 2018. Harvested yield increased from last year to 51.7 bushels per acre. A smaller carry-in and reduced imports partially offset the effect of the larger 2019 wheat crop. Total use is projected to increase from 2018 with feed/residuals and exports driving the increase. The strong demand is expected to reduce stocks to a stocks-to-use ratio of 48.1%. Even with reduced stocks, the U.S. MYA price is projected lower than last year’s price at $4.60/bushel. USDA is projecting 2020 wheat seeding to decline by 2.6 million acres with a slight reduction in ending stocks to 921 million bushels. If realized, the stocks would be the smallest quantity since the 2014-15 marketing year.

Tobacco—Kentucky’s tobacco sector continued to shrink in 2019 as U.S. burley exports fell (-30%), while burley leaf imports grew (+40%) even in the midst of an accelerated decline in domestic cigarette sales (-5 to-6%). In addition, the dark tobacco sector is being adversely impacted by declining smokeless tobacco sales, following more than two decades of growth. Despite controversy, alternative tobacco products (vaping/e-cigarettes and heat-not-burn) are displacing some traditional tobacco products, with much uncertainty on their long-term impact on leaf tobaccos. The U.S. burley crop may total 80-85 million pounds (-15 to 20%) in 2019, while U.S. dark tobacco production may be around 75 million pounds (-10 to 15%). Despite lower production, leaf prices are not expected to change much from last year’s levels, given contract price levels and some curing quality issues for burley. Overall, Kentucky tobacco cash receipts will likely fall below $300 million for 2019, compared to averaging $356 million over the past 5 years. Lower tobacco production levels may move the sector to a more balanced supply/demand levels for 2020, which may result in fairly stable contract volumes for the coming year. Grower profit margins continue to be squeezed with higher labor costs coupled with limited yield gains and stagnant leaf prices, resulting in continued concentration among growers.

 
Hemp—Kentucky’s hemp sector continues to evolve, with opportunities, new challenges, and much regulatory and economic uncertainty. Interest in the crop swelled in Kentucky as well as across the nation, following the passage of the 2018 farm bill, coupled with promising income opportunities amidst a depressed ag economy. Hemp acreage across the nation increased from less than 100,000 acres in 2018 to reportedly over 500,000 licensed acres in 2019, with perhaps more than 250,000 acres harvested. Over 90% of Kentucky’s planted acres (26,500) in 2019 were devoted to CBD production. As expected, the escalation of production outplaced the growing CBD product market, causing farm-level prices to decline by 50% or more. According to the Kentucky Department of Agriculture, hemp processors paid Kentucky growers $17.75 million in 2018. Based on price and production estimates, Kentucky farm-level hemp sales may total $55 to $65 million in 2019 (1% of Kentucky ag cash receipts). Adequate processing infrastructure, credit/transportation issues, weed control, seed identity, labor issues, and timely payments provided additional challenges this past year. With dozens of new states coming on board for 2020, supply expansion may continue to be a concern, despite an overall growing product market. Moving forward, growers are advised to closely monitor and evaluate their own personal risk tolerance, contract terms, and business relations as this industry matures amidst much regulatory and economic uncertainty.

 
Fruits, Vegetables and Greenhouse—Yields and markets for KY produce remained firm despite very dry growing conditions mid-summer. Produce sales continue to be made up substantially of farm market and other direct to consumer sales, contributing around 40 to 50% of the total. Record imports and labor costs have dampened produce markets nationally. The nursery industry benefitted from a 12 year high in housing starts in 2019. Consumer spending and disposable income, which also increased sharply in 2019, certainly helped contribute to stronger nursery markets, including plant sales.

 
Forestry—While the overall estimated 2019 economic contribution of the Kentucky forest sector remained stable at $13.2 billion, there was considerable volatility among products and species. The down-trending Asian export markets for wood products, exacerbated by tariffs, and coupled with a soft domestic market hit red oak hard, significantly reducing prices for red oak lumber and timber. The presence of red oak in many of our woodlands decreased their overall value and landowners made decisions not to sell timber. This negatively impacted logging and primary wood manufacturing and this situation will continue into 2020. There were some bright spots with the startup of the idled Phoenix paper mill in Wickliffe, KY igniting a dormant pulpwood market in western Kentucky. White oak and walnut logs remain in high demand, resulting in high prices which are expected to continue into 2020 and beyond. Increasing demand for white oak stave logs for whisky barrels, along with a stable market for crosstie logs has helped to prop up the logging sector and kept some primary wood manufacturing facilities from experiencing significant losses. While white oak markets will continue to increase and cross tie markets are estimated to remain stable through the first half of 2020, a significant amount of uncertainty in other wood product markets, not limited to red oak, will likely lead to lower stumpage prices in the near future.

U.S. Agricultural Economy

The U.S. agricultural economy continues to be challenged, following an unprecedented/record breaking period of growth during 2007-2013. In August, USDA projected net farm income to total $65.7 billion in 2018, down $9.8 billion (-13%) relative to 2017. Adjusted for inflation, USDA’s estimated U.S. net farm income level for 2018 would only be slightly higher than 2016, which represented the lowest level since 2002. USDA will be updating their 2018 forecast on November 30th, reflecting revised price and yield projections, crop losses from recent hurricanes, along with trade-payments made from the Market Facilitation Program (MFP). After accounting for these factors, U.S. net farm income will still likely be near 50% below the record level established in 2013.

The August USDA farm income estimates predicted that 2018 U.S. ag cash receipts will remain relatively stable in 2018 in response to improved poultry and wheat sales, offset by lower corn, soybeans, dairy, cattle, and hog receipts. After falling two out of the past three years, production expenses are expected to increase by 3.3% in 2018, due to higher labor, fuel, and interest costs. Government farm payments, which generally accounts for approximately 10 to 20% of net farm income, will reflect lower 2018 farm bill-related payments, but will account for the portion of the $4.6 billion of MFP payments paid in 2018.
Despite a higher valued U.S. dollar and all the trade tension this past year, U.S. ag exports actually increased 2% in FY 2018 (which ended September 30, 2018) on the heels of strong corn (+17%), and meat exports (beef +16%, poultry +7%, dairy +5% and pork,+3%) exports, offsetting lower soybeans exports (-8%). Canada replaced China as the leading destination for U.S. ag exports, followed by Mexico, China, EU, and Japan. Undoubtedly the strong export market, fueled by a robust global economy, helped support ag prices in 2018 in the midst of abundant global supplies.

Without a major supply shock, prices for most ag commodities will likely remain relatively low in 2019 in response to abundant global grain supplies, growing meat supplies, and an uncertain trade environment. Export growth will be constrained by a slowing global economy and an anticipated stronger U.S. dollar. While welcomed by U.S. agriculture, the U.S. Mexico Canadian Agreement (USMCA) will not likely result in an immediate boost to U.S. ag trade in the region given retaliatory tariffs still being assessed. Plus the USMCA, which must be ratified by Congress, still faces political challenges following the 2018 U.S. midterm elections. The Trump administration has now turned to developing bilateral trade discussions with other important ag export markets like Japan and the EU to boost future U.S. ag exports.

Amidst a prolonged dip in the farm economy, ag lenders are beginning to observe financial stress among some of their customers. Relatively low interest rates (along with cash purchases) initially constrained growth in farm debt levels, and also provided support to land values in the early years of the recent downturn in the U.S. ag economy. While farm asset values remain surprisingly strong, continued low commodity prices are causing cash flow/liquidity challenges for many producers, forcing increasing operating loan activity. Despite the slumping farm economy, the overall balance sheet for U.S. agriculture as a whole still remains relatively strong compared to the farm crisis days of the early 1980s, but financial conditions are deteriorating in the midst of anticipated higher interest rates and continued low crop and livestock prices.

Besides monitoring trade policy developments, U.S. agriculture will be watching what evolves within the farm bill, immigration debate, crop output in South America, and actions by the Federal Reserve in the coming year. Food price inflation has once again increased modestly in 2018 (+1%) and is expected to remain below historical annual levels (+2.5%) in 2019 as consumers benefit from intense competition in the grocery sector, abundant ag/food supplies, and continued food marketing efficiencies and innovations. However, disruptions in trade flows among food importers could begin to creep into U.S. food prices if trade tensions accelerate.

 
Kentucky’s Agricultural Economy

The University of Kentucky’s Department of Agricultural Economics is forecasting that Kentucky ag cash receipts will be relatively stable in 2018 at $5.7 billion, matching last year’s level, but well below the record $6.5 billion in 2014. Higher yields for most crops, except tobacco, along with continued strength in equine and poultry markets, helped offset lower soybean and dairy prices. Gains are expected for horses (+10%), poultry (+3%) and soybeans (+7%), while losses are anticipated for dairy (-15%), wheat (-15%), hogs (-9%) and tobacco (-6%). Despite modest expansion and competition from other meats, cattle prices and value remained relatively flat in response to strong export markets for beef.

Poultry will likely remain Kentucky’s number one ag enterprise, accounting for 21% of projected 2018 sales, followed by equine (18%), soybeans (15%), cattle (13%) and corn (12%). For 2019, Kentucky ag cash receipts are expected to be remain around $5.6 to $5.8 billion with continued strength in the equine and poultry markets offsetting anticipated losses for soybeans, tobacco, and cattle. Look for continued growing demand for local produce/meats and value-added agriculture, with a slowing U.S. economy constraining greenhouse/nursery sales.
Kentucky’s net cash income declined from averaging $2.3 billion during the boom period of 2011-2014 to averaging $1.8 billion over the past three years. Farm income in Kentucky has held up better than national trends given our mix and diversity of agriculture and above average grain crop yields. Kentucky farmers will receive approximately $100 million in 2018/19 for the first round of MFP payment funding, which help counter declines in farm-bill (ARC and PLC) payments. Like the U.S., trade developments and weather will dictate the direction of Kentucky farm income for the upcoming year.

Cattle-- Despite higher production levels across all three major meats, cattle prices managed to hold relatively steady for 2018. A strong economy and impressive export levels (despite trade issues) both worked to somewhat offset the supply challenges. Frequent rain created some challenges, but also resulted in good forage growth through summer and fall for much of Kentucky. Calf prices for the year actually averaged about $8 per cwt higher than 2017; heavy feeder cattle prices were virtually changed. While there are signs that cow-herd expansion may be slowing, expect an increase in beef cow numbers for 2019. This, coupled with another round of production increases for pork and poultry, suggests lower prices for cattle year-over-year for 2019. Look for a seasonal increase in prices during the spring, but expect prices by fall 2019 to be below fall 2018 levels.

 
Poultry--The poultry sector continues to grow in Kentucky as receipts are forecast to approach $1.2 billion for 2018. Broiler prices spent most of the spring and summer above 2017 levels, but did fall sharply from late summer to early fall. This decline is seasonal, but the drop in 2018 was sharper than usual. All indicators are that the sector will continue to grow in Kentucky in 2019.

 
Hogs-- With pork production up nearly 3% for 2018, hog prices came under pressure, averaging around $60 per cwt in the Eastern Cornbelt on a carcass weight basis. This represents more than a $5 per cwt decrease from 2017, and is likely near, or below, production costs for most operations. Looking ahead to 2019, another sizeable increase in pork production is expected as hog inventory continues to grow at the national level. Trade will be an especially important factor for hog prices as over 20% of U.S. pork production is typically exported.

 
Equine-- Kentucky equine receipts continue to show strength and should exceed $1 billion for 2018. A relatively strong economy and another Triple Crown winner likely supported both sales and stud fees for 2018. The Keeneland September yearling sale was up more than 20% from 2017. It is likely that this strength will continue into 2019.

 
Dairy-- Kentucky dairy cow numbers were estimated by USDA to be flat from January 2017 to January 2018, but have certainly declined during this year. Many producers were impacted by loss of contracts with Dean’s and all were impacted by unattractive margins. Farm level milk prices for the year were down more than $1.50 per cwt from 2017. Prices are forecast to improve slightly, especially in the second half next year, but margins will still be very challenging.

yield of 178.9 bushels/acre produced a Kentucky corn crop totaling 14.6 billion; however, smaller carry-in offsets the larger crop and reduces supply from last year. Strong domestic and export use is projected to reduce stocks to an 11.5% stocks-to-use ratio. The U.S. marketing-year average farm price for 2018/19 is pegged at $3.60/bushel up $0.24 per bushel from 2017. Currently, USDA projects 2019 corn area to increase by 2.9 million acres from 2018, with an updated estimate to be released in February 2019.

 
Soybeans—U.S. planted and harvested area of soybeans declined by 1 and 1.2 million acres, respectively, from 2017. The potential record yield of 52.1 bushels per acre provides a record U.S. soybean production of 4.6 billion bushels. Total use is projected to fall by 189 million bushels because of reduced exports with China. Ending stocks are forecast to increase to a record 955 million bushels and the largest stocks-to-use ratio since 1985. The U.S. marketing-year average farm price for 2018/19 is projected at $8.60 per bushel. Currently, USDA expects 2019 soybean area to decrease by 6.6 million acres from 2018.

 
Wheat-- U.S. wheat planted and harvested increased by 1.8 and 2.1 million acres, respectively, from 2017. Harvested yield also increased from last year to 47.6 bushels per acre. The larger 2018 wheat crop was partially offset by a smaller carry-in and reduced imports. Total use is projected to increase from 2018 with exports driving the increase. The strong demand is expected to reduce stocks to below a stocks-to-use ratio of 43.7%. Reduced stocks will support a higher U.S. marketing-year farm price of $5.10 per bushel. USDA projects 2019 wheat area to increase by 3.2 million acres from 2018. The delayed corn harvest and wet fall weather may reduce this amount.

Tobacco-- Slumping demand/contract volume coupled with an extremely poor growing season resulted in a significantly lower burley crop. Beltwide 2018 marketings may struggle to exceed 100 million pounds, compared to over 140 million pounds in 2017. In the midst of declining global demand for burley, world burley production was up by 15%. Overall demand for U.S. burley may only total around 100 to 110 million pounds given declines in domestic cigarette sales (-4 to 5%) and burley leaf exports (-5 to 7%). After two decades of growth, sales of snuff show signs of leveling off, hindering dark tobacco demand. E-cigarettes/vaping products, which contain virtually no U.S. tobacco content, continue to take market share away from traditional tobacco products. Cigarette manufacturers continue to invest in new reduced risk tobacco products, although the leaf content of these products likely contain limited amounts of U.S. leaf. Tumbling U.S. burley demand, and slowing snuff sales will likely lead to additional reductions in contract volume for 2019. The value of Kentucky tobacco production may struggle to exceed $300 million in 2018 compared to averaging $366 million over the past ten years. Given the current outlook, labor/regulatory challenges, product demand changes, and tighter margins, look for continued concentration in the number of Kentucky farms growing tobacco in 2019.

 
Fruits, Vegetables and Greenhouse-- Generally favorable growing conditions in 2018 led to expansion of local produce supply out of Kentucky. Market shortages in 2017 played strongly to Kentucky’s favor. Prices were generally back near typical regional prices leading to slightly lower overall revenue for fruit and vegetable growers. The 2018 estimate of $48 milllion in produce sales is made up substantially of farm market and other direct to consumer sales, contributing around 40 to 50% of the total. The nursery industry benefitted from an 11 year high in housing starts in early 2018, but has since been adversely impacted by higher interest rates. Consumer spending, which also increased sharply in 2018, is expected to slow somewhat in 2019, constraining the growth in sales.

 
Forestry-- The forestry sector has been stable in 2018 contributing a total of $13.2 billion to Kentucky’s economy. Upward price trends for white oak stave (barrel) logs and railway tie logs are predicted to continue into 2019. Rapid log exporting to China has flattened. The third and fourth quarters have seen a decline black walnut, red oak, and ash. Downward pressure on log prices for red oak and ash due to tariffs and sluggishness of China’s economy have been countered by wet weather, keeping log inventories low, and prices stabilized. It will be early spring before which of these countering forces will prevail. Declines in housing starts will likely depress domestic demand for oak, hickory and yellow-poplar leading to stable stumpage prices in 2019.