Ag Outlook Sees Mixed Financial Future

November 23, 1999

Farm financial conditions on average remain strong, but regional fortunes vary significantly, depending on the mix of production and local weather, says USDA in its latest outlook report. The latest agricultural outlook also will look at China's feed manufacturing industry, milk production and prices, world rice supply and prices, profiles of crop insurance purchases and agriculture in Poland and Hungary in view of European Union accession.

Although cash receipts declined this year as supplies increased and farm prices declined, record government payments should pull net cash income to a level just below the 1997 record, says USDA.

With national average crop yields large and export demand stagnant over the last three years, stocks are increasing for key commodities, including wheat, corn, soybeans, cotton and rice. Although total meat production should be record large this year, some livestock prices, particularly cattle, are showing signs of recovery, according to the report.

USDA's Economic Research Service has examined three factors that affect demand for crop insurance: farmers' risk characteristics, farm income levels and cost of insurance -- based on data from Iowa corn and soybean producers who purchased yield and revenue insurance in 1997.

Study results suggest that by considering risk and other characteristics associated with farmers who buy different types of contracts, it may be possible to structure insurance rates to more closely reflect farmers' risk profiles and may lead to a more self-sustaining agricultural insurance industry.