The good news, according to agricultural economist Charlie Forrest, is that farmers may not be in quite the financial dire straights they were in the mid-1980s. However, there's little else to celebrate in Forrest's economic outlook for most commodities.
“There's a lot of gloom and doom and, with the exception of livestock, the ag outlook stinks. But in general, we're not nearly as bad off as we were in 1985,” says Forrest, an agricultural economist at Mississippi State University.
Forrest, who spoke at the Mississippi Agricultural Economics Association's June 29 annual neeting at MSU, says, “Ag lenders and farmers learned some important lessons in the 1980s, including the fact that debt does not replace earnings.”
In 1985, farmers' average debt to asset ratio was 28.8 percent. In comparison, that figure rose to 21.4 percent in 1990 and 18.7 percent in 1999, according to Forrest's report. In addition, U.S. producers' 1999 net farm income was 20 percent or more above the eight-year average for the period from 1990 to 1998, he says.
Despite the past lessons learned, Forrest says commodity prices have been trending downward over the past 20 years and the outlook for 2001 and 2002 commodity prices is equally dismal. “Weíve had significant recent declines in commodity prices when compared to the last 20 years.”
That means 2001 may mean much of the same. ìThe prices of most commodities have fallen off a cliff and nose-dived straight down since about December 2000 or January 2001. We're going to be burdened with large supplies of most of our major commodities again in 2001,” he says.
Forrest's outlook on is as follows:
“Cotton prices have fallen straight down since the first of the year, and I expect the average cotton price for 2001 will come in below USDA's 52.4 cents projection. I believe the average price for cotton in 2002 will also likely fall below the 52 cents mark,” Forrest says.
The reasons for such a bearish outlook, he says, include a winding down of domestic cotton use, an over-supply in both foreign and domestic production and expected increased production.
“It's the same story for soybeans as it is for cotton,” he says. “We've had several years of good production and new production records are expected in 2001.”
In addition, Forrest says, soybean exports are projected to reach a record 995 million bushels in 2001. At the same time, domestic soybean use remains strong.
Putting further pressure on soybean prices, he says, are record large acreage crop acreage numbers. “South America increasing acreage more dramatically in the last five years than ever before.”
Despite adequate domestic use, Forrest says there is an overall lack of demand for corn. “The Starlink issue has prevented the United State's number buyer, Japan, from purchasing corn from us. The debate over biotechnology remains an issue for all grains, but for corn especially.”
To make matters worse, an over-supply of corn worldwide is providing negative pressure on corn prices. Ending U.S. corn stocks this year are the highest they've been since the 1992-93 market year.
In what Forrest calls “the only bright spot” in his commodity outlook, cattle demand remains strong with producers receiving record retail prices.
Cattle numbers have declined since 1996, and Forrest expects two to three years of profitable prices still to come for U.S. cow-calf producers. And, although disease outbreak remains a threat, cattle imports are up and exports are down.
Poultry production for the first-quarter of 2001 has decreased for the first time in many years. However, 2001 production is up a fraction overall, and 2002 production is expected to rise by about 3 percent.
Exports are also on the rise with April numbers up 46 percent. “We are now exporting to more countries and I expect 2001 annual exports will be up seven percent and 2002 exports will increase by about 5 percent.”