Ag industry slowly gaining ground in 2001

U. S. agricultural markets continue to make weak gains from oversupply and weak demand conditions common in the late 1990s. Major field crops still have large carry-over balances but export demand is growing, thus stimulating a weak recovery in prices from 20-year lows.

Net farm income was slightly higher in 2000, thanks to record payments from emergency government assistance. Government payments to the agricultural sector will decline in 2001, likely resulting in lower farm income. Costs for fuel- and energy-related inputs continue to increase.

The main reason for continued low domestic prices for major field crops is good weather in much of the United States and many foreign countries. Record corn and soybean crops were harvested in 2000.

Red meat and poultry production probably reached a record high in 2000 and even higher output is expected in 2001. Feed costs are low, keeping production expenses under control. Hog and cattle prices remain strong, however, because of the robust U.S. economy — which is showing signs of weakening.

Growth in the volume of U.S. agricultural trade is projected to be relatively strong over the next decade. Demand growth for food products is increasing as prosperity expands in the world and as progress continues towards freer trade. Prices are not expected to increase as fast as demand growth because of large stocks and continued productivity gains in exporting countries

Future trends in China’s agricultural trade are key to the global outlook for commodity trade and prices. Signifi-cant uncertainties exist regarding future policies in China; the size of the country’s agricultural economy increases the significance of these issues.

Less wheat area will be needed over the next 2 to 3 years as existing stocks and gains in yields adequately accommodate demand growth. U.S. wheat exports will grow but will meet increased competition from the EU in 2004/2005 because of the balance between their internal prices and international prices. Supplies must be brought into balance with demand before prices will strengthen.

The corn market currently suffers from large supplies relative to demand. A resumption of growth in U.S. exports hinges on improved world economic prospects and an easing of competition from other exporting countries. The number of acres planted to corn needs to decline in response to continued low prices. Strong yield gains for corn will continue, led by improvements in genetics. Demand for corn is currently being boosted by a record number of grain-consuming animals in the U.S. livestock sector.

Sorghum prices are strong, fueled by increases in shipments to Mexico. An increase in ethanol use has also helped.

High milk prices and strong returns in the late 1990s caused an expansion in milk production that will depress prices in the near term. During the late 1990s, healthy producers accelerated expansion plans while weaker producers were able to delay their exit from dairying. Demand will remain strong but the higher output will put pressure on prices.

Markets for dairy products have changed substantially in recent years as consumer incomes and wealth have increased. Retail sales no longer are the main outlet for most dairy products. Cheese and butter are consumed mostly by away-from-home dining establishments or by makers of processed foods.

To summarize, there are signs of recovery in the prices of many crops but much depends on reduced acreage, less favorable growing conditions and less foreign competition in the international marketplace.

The livestock sector continues to be robust but the downside of the cattle cycle looms on the horizon. Feed prices will remain low and more volatile as other countries fight outbreaks of animal diseases. Beef sales were down 35 percent in Spain and have dropped roughly 60 percent in Germany because of mad-cow disease. In addition, foot and mouth disease has spread throughout Great Britain and is threatening Europe because of British exports to the mainland.

The nervousness in the livestock market will keep the corn market on the defensive until fear of these diseases striking the United States dissipates.

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