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| Economists predict lower farm income, food prices in 10 years |
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By DOUG SCHMITZ
Iowa Correspondent
COLUMBIA. Mo. — Economists at the Food and Agricultural Policy Research Institute (FAPRI) are forecasting lower farm income and food price inflation for U.S. consumers over the next 10 years.
“‘Volatility’ is the word that best describes agricultural markets,” said Patrick Westhoff, FAPRI co-director and crops economist at the University of Missouri-Columbia, in a March 6 teleconference with reporters about the study to be presented before Congress.
“After a record-breaking year in 2008, in 2009 the drops in crop and livestock receipts outpace any lowering of production costs.”
Established in 1984, FAPRI is a joint effort of the University of Missouri-Columbia and Iowa State University in Ames, which “encourages effective agricultural policy through the development and operation of comprehensive analytical systems.”
According to the FAPRI economists, weakness in the global and domestic economies have slowed food prices and U.S. farm income for 2009, with volatility in oil and currency markets, weather and government policies having all made farm commodity markets more uncertain.
The 10-year baseline report stated all sectors of agriculture face volatility in prices and continued high production costs. With food inflation hitting a high of 5.5 percent in 2008, but slowing in recent months, FAPRI projected food inflation at 2.7 percent for 2009. The report said food exports such as grain, beef and dairy products have dropped sharply, causing lower prices for farmers – and slashing U.S. net farm income by $18 billion in 2009.
While income is expected to recover slightly in 2010, a return to 2008 levels isn’t expected before 2014, Westhoff said.
“The farm upturn projected for 2010 is based on a recovery in the general economy,” he said. “Rising oil prices, strong global economic growth, a weakening U.S. dollar and poor weather in many countries contributed to high commodity prices in 2007 and early 2008.”
But Westhoff said that changed in late 2008 with dropping oil prices, a faltering global economy and a strong U.S. dollar, while better weather increased exports from grain-growing nations. The report said farm commodity prices would also drop, but remain above pre-2007 levels through the decade.
Scott Brown, FAPRI livestock economist, said volatility is illustrated by what dairy producers face as demand drops, with milk staying highly volatile for more than a decade. With falling world demand for U.S. dairy products, he said milk prices are forecast to hit near-historic lows in 2009.
“The worst profit ever is not a record U.S. dairy farmers want to break,” he said.
Average prices in 2008 ran at more than $18 per cwt., with peaks of above $20. FAPRI projects an all-milk average in 2009 at $13, with variations around the average dropping to $11.
U.S. hog producers sold more pork overseas to compensate for rising feed costs, the report said, with record-high feed costs, particularly corn, cutting margins. Lower prices caused cow-calf producers to cull cows, which reduced feeder calves going to feedlots, with cow numbers plummeting 13 percent from the 1996 record high.
Westhoff said the high crop prices resulted in more tillage and the weakening global demands could lead to a four million acre drop in area planted to 12 major crops in 2009. “The baseline is not a forecast, but a projection of what can happen, if current policies remain in place along with other assumptions, such as normal weather,” he said.
Westhoff said corn prices should average about $4 per bushel over the next decade, with about 80 percent of results between $3 and $5. While corn exports and feed use decline, the report said corn for ethanol continues up to meet mandates in the 2007 Energy Independence and Security Act.
Although corn futures reached $8 per bushel last summer, they fell below $4 by November, with the average farm price projected at $3.74 for the crop harvested for fall 2009. By 2017, FAPRI projects more corn to fuel than would be fed directly to livestock.
The report said U.S. soybean farm prices dropped from $9.37 per bushel to $8.76 for the crop harvested in 2009, with existing excess biodiesel production capacity lowering prices, even with increases with federal mandates.
The report also said an uncertainty in the baseline is how many crop farmers will switch to ACRE (Average Crop Revenue Election), a voluntary income-support program in the 2008 farm bill.
Westhoff said FAPRI computers make 500 runs, drawing random influences, such as weather, exports and exchange rates. “There are many risks not captured by 500 runs,” he said. “We’ve tried to capture the many sources of volatility, but it’s safe to say markets will continue to find new ways to surprise us in years ahead.”
For more, visit www.fapri.missouri.edu |
| 3/11/2009 |
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