By TIM THORNBERRY
Kentucky Correspondent

LOUISVILLE, Ky. – Agricultural economists from the University of Kentucky (UK) College of Agriculture once again took a look into their crystal balls during the annual Kentucky Farm Bureau (KFB) conference to provide an overview of the year in state agriculture and a glimpse into what 2011 may hold.

Despite another year in a difficult economic recovery, farmers here are expected to see between $4.4 and $4.7 billion in farm cash receipts, a $100-300 million increase over 2009, with the $5 billion figure being tossed around as a possibility for next year.

Craig Infanger, Extension professor in the UK Department of Agricultural Economics said larger volumes of grain exports at higher prices, as well as improved horticulture and meat exports led to this year’s increases. He added that there are a few things that have to happen in order to reach that $5 billion milestone, a strong export market fueled by a low U.S. dollar value abroad and a favorable weather pattern being two keys. But, it is certainly conceivable and possible, for the first time in state history, to achieve that goal.

“I think the fundamentals are in place for a very positive outlook into 2011,” he said. “I don’t think the $5 billion is a once-in-a-lifetime number but a reasonable number of what cash receipts might be and we should be able to build on that.”

In the wake of declining tobacco and equine numbers, the fact that Kentucky farmers have been able to maintain such a high level in farm cash receipts shows the dynamics of Kentucky farms, said Infanger.

“Kentucky agriculture is dynamic, it can change and adapt and Kentucky agriculture is a participant in international markets and an agriculture that is getting more efficient,” he said.

The export market has especially been important to the ag sector since the commodities crash in 2008. Projections for 2010 put exports at $113 billion with increases expected to continue in 2011.
The panel delivering the news included UK agricultural economists Kenny Burdine, Lee Meyer, Will Snell, and Cory Walters, Dewayne Ingram from the UK Department of Horticulture and Kentucky Farm Business Management Program Coordinator Jerry Pierce.

And while most of the news was good, tobacco production took another fall due to a “soft” domestic and international market.
Snell told the gathering that it is a challenging time for tobacco right now and the uncertainty continues for producers.

“We’ve had acceleration in the decline of cigarette sales in the U.S. market in response higher prices and an overall sluggish U.S. economy, plus the health issue and additional smoking restrictions,” he said. “To add to this, the regulatory uncertainties that are facing the companies right now and the fact that we also have an abundant supply of burley tobacco on the market, all of this resulted in the market telling our producers, we need less burley.”

As if tobacco farmers didn’t have enough facing them on the domestic front, internationally the heat is on and getting hotter as a World Health Organization (WHO) conference held in Uruguay last month adopted guidelines suggesting the regulation of adding ingredients to tobacco to enhance the flavor.

Snell added that 2010 contracts were indicative of the unstable market and many producers received reduced contracts or were cut out altogether. According to the USDA, U.S. burley tobacco production is expected to be 186 million pounds for 2010, a decline of 13 percent over 2009 numbers.

Snell said his best guess was that Kentucky producers took a 20 to 30 percent cut in contract pounds.

Projections for 2011 hinge on further government regulations here, but more importantly what happens on the international front. Tobacco companies are likely to stay on the conservative side again next year.

The equine sector, while still not at the mark it was a few years ago, showed a slight improvement over the 2009 number of nearly $800 million. Little change is expected for next year as sales and stud fees, the primary provider for equine receipts, should mirror the overall economic recovery, according to information from UK. 
Poultry continues to hold the number one spot in cash receipts and the market looks favorable for next year with a three percent increase in production expected.

UK information notes that the USDA “projects U.S. net farm income to be up 24 percent this year. Improved market conditions for beef cattle, dairy and poultry are driving the increase, and recent surges in corn and soybean prices are also helping.”

Net farm income for 2010, excluding government payments, is expected to be $1.3 billion, just off the 10 year average.
Currently new corn, wheat and soybean futures prices are close to record levels. Meyer said that the continued growth in the use of corn for ethanol production is a contributing factor in the price of corn right now and that it has a broad effect on the livestock industry due to the use of corn as a feedstock.

He said that USDA figures estimate total meat production to decline slightly over the next two years, but pick up beyond that time period.

Beef producers in the state dealt with another drought for the third year out of four.

Export market demand helped to support fed cattle prices offsetting higher production costs due to higher corn prices. Beef cow numbers are expected to decline by January 2011. But Burdine thinks livestock receipts will likely increase by $100 million to $200 million next year due to a continuing tight meat supply.

Dairy producers saw a better year in 2010 after a disastrous 2009. Milk prices are expected to rise $3 per cwt over last year’s prices with milk production expected to increase in 2011.