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Grain markets up, will farm income follow?

(Monday, Dec. 23, 2002 -- CropChoice news) -- Reuters, 12/22/02: Despite the strongest wheat, corn and soybean prices in half a dozen years and forecasts for prices to climb even higher in 2003, few in U.S. agriculture are declaring a recovery for the moribund farm economy.

The farm economy picture remains mixed with the Agriculture Department forecasting net U.S. farm income will fall to $36.2 billion in 2002, a sizable 20 percent drop from last year.

Part of that decline is due to a scorching summer drought that withered crops and grazing pastures in the Plains states and Corn Belt and hurricanes that damaged crops in the South.

Sour conditions this year darkened some experts' expectations.

"It's pretty tough to say it's a farm recovery. There's too many problems out there," said Tom Buis of the National Farmers Union. NFU and other farm groups planned a new push in January to ask Congress for up to $5.9 billion in disaster relief.

Yet there are signs of improvement in agriculture.

The World Bank (news - web sites) foresees wheat, rice and corn (maize) prices rising by 20 percent in 2003, following on this year's rebound. The U.S. Agriculture Department projects stronger cattle, hog and poultry prices in 2003.

A farm subsidy law adopted in mid-2002 boosted spending.

"All of that bodes for some recovery," said Agriculture Undersecretary J.B. Penn, when coupled with low interest rates and stable petroleum prices on the "cost" side of the ledger. Agriculture is a large borrower and user of petrochemicals.

In an interview with Reuters, Penn said "the picture is looking brighter than it has been" although official forecasts have yet to be made.


The USDA will begin quantifying the outlook for 2003 with a Jan. 10 report on winter wheat seedings. In February, it will project farm income, crop size and farm-gate prices for 2003.

The USDA already has forecast farm exports of $57 billion this fiscal year, the highest tally since 1997. Exports account for 25 cents of each $1 in cash receipts by American farmers.

With grain stockpiles forecast to shrink by 17 percent and oilseed supplies by 11 percent worldwide before the new crops are ready for harvest, farm prices might remain strong.

"The draw-down of stocks leads us to believe that relatively high prevailing prices for grain and oilseed crops are more likely to be a two-year event, and possibly longer, and not a one-year bubble," said the consulting firm Schwab Washington Research Group.

Corn, soybeans and wheat prices will be from 20 percent to 25 percent higher for this marketing year compared to the average prices for the preceding three years, Schwab said.

In its latest look at crops, USDA estimated corn prices would average $2.40 a bushel, wheat $3.80 and soybeans $5.45 this marketing year, which ends at harvest-time -- highest since the mid-1990s when global supplies were tight. Average prices for the three previous crops were $1.88 a bushel for corn, $2.62 for wheat and $4.51 for soybeans, Schwab said.

Larger revenues by growers has a ripple effect, spurring purchases of tractors, combines and other farm equipment.

Sales of new combines and large tractors are down sharply this year, says the Association of Equipment Manufacturers.


Some of the common indicators of farm-sector health were mixed, allowing a dour view of the farm economy.

Land values continue to rise. Farm equity was growing faster than debt but the overall debt to asset ratio was forecast to rise to 15.6 this year. It was 15.4 in 2001.

The Chicago Federal Reserve (news - web sites) Bank said bankers in five Midwestern states reported the rate of loan repayments fell in the 2002 third quarter, which reinforced "growing concern about financial stress in the agricultural economy."

"The jury is still out on whether we can say we're having an economic turnaround in agriculture," said Bob Stallman, head of the American Farm Bureau (news - web sites), the largest U.S. farm group.

Beyond grain prices, Stallman said farmers are affected by rising costs for fertilizer, pesticides, equipment and repairs. Access to credit and loans in 2003 still must be gauged.

"Farm income is disastrous in 2002," said analyst Stewart Ramsey of DRI-WEFA.

"Anything we've seen in price strength has been offset by the decline in farm payments," Ramsey said. "For any boom-time, they (prices) are going to have to move up more."

Federal payments declined somewhat in 2002 because higher prices obviated the so-called loan deficiency payments available when prices dip below a government-set threshold. Congress also failed, for the first time since 1998, to enact stop-gap aid to offset low prices or bad weather.

"The need in many parts of the country is dire," North Dakota Democrat Byron Dorgan wrote in a letter to Senate leaders. He suggested passage of the $5.9 billion package.

Nebraska Republican Chuck Hagel says a lower-cost package is more viable. President (George w.) Bush threatened to veto disaster aid without spending cuts elsewhere in the budget.

Private analysts and USDA say U.S. wheat plantings for harvest in 2003 were likely to climb sharply, spurred by higher prices and timely rainfall during winter wheat seeding.

U.S. soybean plantings were expected to fall in 2003, due partly to a lower support price, while corn and wheat rose.