The beef market should remain strong in 2012 which is great news for Southwest producers—especially Texas, where cattle and calves represent more than half the cash receipts in the state's overall agricultural industry.
Many days of rainfall throughout most December across much of Texas also seemed to indicate a changing pattern in weather, with the wet period adding to the optimism for the New Year for both cattle and winter wheat prospects.
"We have the fewest cows in 50 years," says David Anderson, Texas A&M AgriLife Extension livestock economist, College Station.
Anderson says the 2011 Exceptional Drought in Texas led to fewer calves, causing even tighter cattle supplies across the U.S.
"I think we will continue to maintain historically high prices," Anderson says.
Anderson says the historic drought resulted in the largest one-year drop in Texas cow numbers ever, with more than 600,000 sold by cattle producers. The fewer cattle and calves will translate into higher prices in the market.
Derrell Peel, professor and Extension economist, Oklahoma State University, Stillwater, says the tight supply of beef will last beyond 2012.
"The U.S. cattle herd will be tight for the next five or six years," Peel predicts.
The feedlots, which have been searching for cattle, got a temporary boost in available numbers simply because of the sell-off of animals driven by the 2011 drought. Cattle that normally would have gone to market during the fall were sold off in late summer.
But in 2012, feedlots will find it harder to obtain cattle to put on feed.
Anderson says nationally, a 12% decline the beef cow inventory is the second largest U.S. decline in history since 1934-35.
It will take some time to rebuild cattle herds—and that's if the weather cooperates.
Cotton supply ample
While cattle represent Texas' No.1 agricultural commodity, cotton is the state's No. 1 crop. The picture is not as bright for cotton.
The drought-ravaged 2011 Texas cotton crop was a mere half of the 2010 crop, but the short harvest didn't change the fact that in the big picture—the world supply and demand—there's simply still plenty of cotton.
Carl G. Anderson, Texas A&M professor emeritus and noted cotton marketing economist, College Station, says the mid-December USDA Supply-Demand estimates reinforced the world cotton perspective as one of increased supply, decreased demand, and lower cotton prices.
While Texas may have been hammered by the drought, foreign cotton production for 2011-12 is up 10 million bales from the year before. At the same time, foreign mill use of cotton is down by 2-½ million bales.
Anderson says as a result, world ending stocks will increase by more than 11 million bales to 57.7 million bales of carryout.
"That is an enormous increase of 27 percent from 2010-2011 and amounts to a little more than 6 months of world consumption," Anderson notes.
A year ago, Anderson points out, world carryover only amounted to 4.8 months of global use.
"The current 52 percent carryover-to-use normally indicates lower prices due to a surplus of cotton," Anderson says.
Early the past year, cotton prices spiked at over $2 per pound, which Anderson notes, was not tied to any realistic retail demand for cotton. Indeed, despite wild and quick ride in the futures market, in the real world, the average price received by cotton growers remained below $1 per pound during the runaway market period. This represented a huge gap between the nearby futures settlement price and the average price received by growers.
Anderson says U.S. cotton prices will move with and be tied to foreign mill use .
"Also, the panic a year ago to trade cotton by speculators has slowed because of weakening demand due to the downtown in world economic conditions, and the threat of large deliveries of cotton on the March 2012 futures contracts," Anderson says.
Wheat sensitive to acres/economy
China and India are big players in the world commodity markets—including wheat—an important crop in the Southwest to both Oklahoma and Texas.
Mark Welch, Texas A&M Extension grain marketing specialist, College Station, says developing nations are fueling the global domestic product, especially China and India.
"They are the economies driving the world market," Welch says. "They are your customer, and they are your competitor."
Welch says that while many countries are struggling with financial problems, China's economic growth is expected to be 9% in just the next two years. That will make China an even bigger player in world trade.
Wheat acres will have a big impact. A lot of that depends on weather. Global consumption exceeds demand most years, but when weather patterns cooperate, wheat is an easy crop for many countries to grow—and to greatly expand acreage when prices are good.
Currently, lower-quality wheat supplies are abundant in the world—so that wheat typically is going into the feed grain market. But quality wheat is fetching a premium in the global market.
The Ukraine's winter wheat crop is in worse shape than earlier thought, with 40% going into the winter months in poor condition.
Welch says wheat and corn have moved together in the market in recent months, although fundamentals for each crop are different. Wheat and rice consumption has changed very little over the last 10 years, while corn and soybean use continues up.
In just 10 years, corn consumption in China is up 50%.
Agriculture appropriations limits
The FY 2012 Agriculture Appropriations Bill recently signed into law includes a provision requiring USDA to implement an additional adjusted gross income (AGI) test to determine eligibility for 2012 direct payments.
In addition to the $500,000 three-year average non-farm AGI and the $750,000 three-year average farm AGI, a $1 million three-year average AGI test will be applied to all persons and legal entities that request 2012 direct payments.
The $1 million AGI limitation remains effective for conservation program participants.
Nevertheless, some conservation programs will continue to have signups, which vary from state to state. But most are open for signup at any time. Popular conservation programs include the Environmental Quality Incentive Program (EQIP), and the Wildlife Habitat Incentives Program (WHIP), along with the Conservation Stewardship Program, Wetlands Reserve Program, Grasslands Reserve Program, and the Farm and Ranchland Protection Program.
Producers should check with their local USDA Farm Service Agency (FSA) or Natural Resources Conservation Service (NRCS) offices to see what programs are available in their area, and what the signup periods are for them.
Although farm incomes may be increasing, which is widely reported in the general news media and by some politicians, the numbers are offset in rising production costs. So while U.S. farm income is estimated to be up 28% for 2011 from 2010, agriculture input costs skyrocketed to $320 billion. This exceeds $300 billion for the first time in American history, and is a 120% increase from input costs a year earlier.