The Year Ahead: Forces that will Shape the U.S. Rural Economy in 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.