When looking at the state of the farm economy, 2005 looks bleak compared to 2004. But University of Missouri Food and Agriculture Policy and Research Institute Economist Pat Westhoff says his outlook is much more positive if 2004 isn't the reference point.
Westhoff testified Thursday before the House Ag Committee's Subcommittee on General Farm Commodities and Risk Management. At least in nominal terms, net farm income is still on track to be the second highest ever in 2005. USDA estimates, and Westhoff says he would agree, that farm income is likely to be several billion dollars lower in 2005 than in 2004. Government farm program costs in fiscal year 2005 may be double what they were in fiscal year 2004.
"One could pick any number of other indicators to talk about the health of the farm economy. Whether higher land values are good or bad depends on one's perspective, but the average value of farm real estate increased 11% last year, and all reports indicate a further increase this year. Debt-asset ratios are low by historical standards, and institutions providing credit to farmers report low levels of problem loans," he says.
National average yields for most major field crops in 2005 are generally near or even above the long-term trend, in spite of the serious regional yield problems, he says. "Based on mid-September information, it appears that prices for corn, soybeans, and wheat are all likely to be lower for the crop harvested in 2005 than for the crop harvested in 2004," Westhoff says.
"China is already a major market for U.S. soybeans and could become a major market for grain in the years ahead, but it continues to be hazardous to make predictions about Chinese agricultural markets," he warns.
Higher energy prices have increased farm-level expenditures on fuel and fertilizer. "The agricultural economy will continue to be sensitive to movements in energy prices, and any increase in interest rates could affect debt repayment ability and land prices," Westhoff says. However, provisions energy bill should contribute to increased production of ethanol and biodiesel and increased demand for corn, soybeans, and other crops.
Consumer demand for meat and dairy products has remained strong in 2005, and annual average prices for cattle, poultry, and milk are all higher than expected earlier this year. Average milk and hog prices are lower this year than in 2004, and cattle and poultry prices are about the same. USDA and FAPRI both expect lower 2006 prices for cattle, hogs, poultry, and milk, in part because of supply response to recent strong prices and returns.