The Year Ahead: Forces That Will Shape the US Rural Economy in 2019
January 22, 2019
- After hitting an 8-year high in 2018, global economic growth will slow this year. Trade tensions, particularly between the U.S. and China, remain the leading global risk.
- In the U.S., we project that consumer strength will offset a slowing housing market and weaker business investment to keep the economy growing at a rate of 1.75-2.25 percent in 2019.
- The Federal Reserve is no longer locked into a tightening cycle aimed at returning to “neutral” conditions. Instead, we expect the Fed to stand pat on rates as it attempts to take its foot off the gas and coast safely through 2019.
- With a split Congress, it will be difficult to find enough consensus to move legislation in the next two years. However, bipartisan support will likely be strong enough to pass USMCA, and may be strong enough to back an infrastructure bill.
- Costs will continue to rise for agricultural producers in 2019, adding to their existing financial stress. Resilient land values have supported the roughly 60 percent of farmers that own their land, but persistently weak commodity prices will increase the downward pressure on farmland prices this year.
- Three significant trade-related issues must be solved this year to restore some normalcy to agricultural markets: legislative approval of USMCA, removal of steel and aluminum retaliatory tariffs, and marked improvement in trade relations with China. CoBank expects some progress to be made between the U.S. and China by the March deadline, but a substantive deal that is acceptable to both sides will likely require more time.
- The grain, farm supply and biofuel sectors will experience increased competition in 2019 as ongoing trade disputes increase foreign opportunities. Domestic competition will also increase in the farm supply sector as agriculture retailers face the likelihood of price hikes from a more concentrated supplier base.
- Despite abundant supply and weak margins in the animal protein and dairy sectors, both will continue to expand production in 2019. The dairy, pork and poultry sectors will contend with increased processing capacity and the result of lower processing margins.
- 2018 will go down as a turning point for the role data analytics will play in transforming the rural electric cooperative industry. In 2019, cooperatives that do not harness the benefits of data and adopt strategies involving automated controls, tailored rate structures, enhanced customer engagement, and sophisticated data analytics will fall behind.
- In 2019, electric distribution cooperatives will continue to build out fiber networks in underserved rural markets. Some rural communications providers are concerned about increasing competition, but CoBank continues to believe that over 90 percent of co-op fiber builds occur where service does not exist or is below the FCC standards for broadband.
- In conclusion, the bank’s outlook for the global, U.S., and agricultural economies is unlikely to inspire a great deal of optimism. However, silver linings do exist, and will exert greater influence if a trade deal can be established between the U.S. and China. The rising risks of economic contagion and political consequences are mutual incentives that could cause the leaders of both countries to come to terms, and in turn, appreciably improve the outlook for the rural economy.
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