Serving Minnesota and Northern Iowa.

Agricultural economy expected to cool

By Janet Kubat Willette
jkubat@agrinews.com

Date Modified: 12/09/2013 1:41 PM

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ROCHESTER, Minn. — A University of Missouri professor offered his economic outlook for agriculture at last week's Cooperative Network annual meeting.

Scott Brown, a research assistant professor in the Department of Agricultural and Applied Economics at the University of Missouri-Columbia, said it's tough to be in the business of looking ahead.

He set the stage with a brief look back: The past five years have been a volatile time for agricultural markets, he said. Prices have hit record highs and record lows. The weather appears to be more volatile, too.

While agricultural returns, particularly for crop farmers, have been strong, the U.S. economy as a whole has suffered through the worst downturn in decades, Brown said. Gross domestic product growth has been anemic, at best, out of this recession. In the past, robust growth occurred after economic downturns.

And there's the ongoing farm policy debate. Congress has tried to write a farm bill for the past three years. Farmers need to look no farther than the long, brutal debate to see that agriculture lacks the backing it once had on the hill, he said. More and more, members of Congress represent urban districts, said Brown, who has worked with Congress over two decades and has testified before House and Senate agriculture committees.

More cows?

Brown said the phenomenal run up in corn, soybean and wheat prices contributed to the decline in the nation's cattle herd. Landowners make decisions based on crop prices, he said.

Another contributing factor that helped drive the nation's cattle herd to its lowest level in 61 years is drought.

In 2011, farmers and ranchers in Texas, Oklahoma and New Mexico endured a horrible drought. The cow herd declined in those states, while growth occurred in herds in Iowa and Nebraska.

Drought gripped much of the nation's midsection in 2012. It was incredibly tough in Missouri, Iowa, Kansas and Nebraska, Brown said. As of Jan. 1, those areas had lost cattle from a year earlier.

Not as many areas are classified as abnormally dry or in drought this year. If it stays that way, Brown said the nation's cow herd will begin rebuilding.

Farm income

Agriculture has been a bright spot in the U.S. economic recovery, Brown said, but not all agricultural sectors have benefited equally.

It will be hard to repeat 2012 and 2013 from a farm income perspective, he said. Farm income in 2014 could fall below $100 billion pretty easily. In 2013, farm income was a record $120.6 billion. In 2010, it was $80 billion.

Government payments as a percent of cash receipts have been stagnant since 2010. Judging by the prolonged farm bill debate, Brown says it will be much harder to get congressional support if agriculture falters substantially. That's a risk agriculture hasn't had to deal with for a while.

Direct payments will likely go away in the 2013 farm bill. Why did direct payments start? They started in the 2002 farm bill because they didn't count toward the domestic support cap on farm subsidies.

Brown is amazed by how fast production expenses have crept up to cash receipts.

Crop producers have been winning the past several years. Brown said he thinks crop and livestock prices will come back together. He's predicting a season average price of close to $4 for corn this year and said corn prices could drop below $4 next year if it's another good crop.

This year's 14 billion bushel crop is a shock absorber and buffer that will keep corn prices from the $7 per bushel level.

International markets

International markets drive the U.S. agricultural sector, Brown said. Exports have been good, with one in every four rows of soybeans exported, 20 percent of the chicken, 20 percent to 25 percent of the beef, 10 percent of the pork and wheat and 20 percent of the corn.

Crop area in the United States, South America, China and the Ukraine has expanded. There's nothing like $7 corn to get everyone in the world to expand, Brown said.

Depending on foreign markets can be risky. If the dollar strengthens in value, it will likely cut into exports.

On the plus side, growth potential exists outside the borders of the United States. Meat consumption per capita growth is happening in the rest of the world, Brown said. In fact, meat consumption per capita has been declining in the United States since 2007.

Fewer corn acres

"I think we have acreage changes coming," Brown said.

The United States doesn't need 97 million acres planted to corn. A lot of acres will need to find another use, be it soybeans, hay, wheat or pasture. He's seen projections that 92 million to 93 million acres of corn will be planted in 2014 and 81 million acres of soybeans.

Where will corn acres fall?

"I don't really think Iowa's going to cut corn acres much," he said.

Rather, he suspects the states that had the most growth will have the greatest reduction. South Dakota, for example, went from growing 4 million acres of corn in 2009 to 6 million acres in 2012.

Land values

The question often asked related to land prices is 'is it the 1980s all over again?' Brown said it's a lot different today than in the 1980s. Landowners are not leveraged to the extent they were in the 1980s.

Land value increases have tracked with farm income growth, Brown said. Signs suggest a weakening in land values is ahead, he added. Pressure is building for higher interest rates.

Livestock and dairy

Record prices for livestock and milk haven't resulted in record returns because of record high input costs. The economic downturn only added to the financial stress faced by these sectors, Brown said.

Going forward, he's optimistic returns will be better. Next year could be very good for cow-calf producers. He predicts chicken production will expand fairly quickly. He puts the U.S. all-milk price at close to $19 per hundredweight for 2014.

Cooperative Network serves more than 600 cooperatives in Minnesota and Wisconsin. Its annual meeting was Nov. 18-20 at the Mayo Civic Center in Rochester.