Bleak Farm Price Outlook Somewhat Tempered

February 25, 2000

USDA Chief Economist Keith Collins paints a bleak picture for farm prices this year but tempers the outlook with several positive developments he expects will somewhat offset basement crop prices. Oil prices could add $1 billion to farmers’ costs this year, he says.

In an address to USDA’s Agricultural Outlook Forum, Collins said crop prices "are sobering for producers." He looks for soybean prices to be the lowest since 1972-73, cotton prices the lowest since 1974-75, corn and wheat prices the lowest since 1986-87, milk prices the lowest since 1990-91 and rice prices the lowest since 1992-93.

However, he added, that outlook is somewhat offset by an improvement in global economies. World economic growth is expected to exceed 3% this year, a rate not seen since 1997. Southeast Asian economies are expected to expand 6% this year compared with a 6% contraction in 1998. Latin America should show a 2.7% increase this year after being in recession last year.

A "fairly strong national balance sheet" in agriculture also is a plus, said Collins. Record high prices in the mid-1990s helped farmers weather the current weak markets. Farmers held back on equipment purchases, paid off debt and curtailed debt expansion as farm real estate values continued to increase – 18% over the past five years.

"However, we do expect little to no growth in farm land values over the next couple of years," he said.

The "generally good shape" of farm banks and "a fairly low level of delinquent and nonperforming loans" also were positive for the agricultural sector. The share of such loans in the farm bank portfolio last year was one fifth the level of the mid-1980s.

Still, Collins added, USDA forecasts that farm cash receipts will decline to $190 billion this year, $2 billion less than 1999 and $18 billion below the record $208 billion set in 1997. Lower receipts and lower government payments under current legislation should reduce net cash farm income for 2000 to $49.7 billion, nearly 20% less than 1999 and the lowest since 1986.

The outlook for livestock and poultry "is more encouraging" than for crops, said Collins. Cattle prices should average about 5% higher this year; lower hog numbers should reduce pork production more than 3% this year and push hog prices to around $40 per hundredweight for the year and "enable many producers finally to operate in the black." Broiler prices should decline about 2% from 1999, but producer net returns should continue positive from lower feed costs.

USDA also announced that fiscal year 2000 agricultural exports should total $49.5 billion, $500 million more that earlier expected. That doesn’t include about 3 million tons of recently announced food aid, valued at about $500 million. About 75% of that will be wheat and wheat flour, and the values will be included in future projections when more program details become available.