Despite drought-ravaged crops in the Midwest, U.S. farmers are on track to achieve record net cash farm income this year — $60.2 billion — and the biggest part of it's coming from the market.
More importantly, says Floyd Gaibler, the farm-related portion of that income is projected at almost $41 billion, sharply above the $33 billion to $38 billion range of the past four years.
And, notes the USDA deputy undersecretary for farm and agricultural services, the portion that comes from government payments is “well below the $20 billion to $23 billion” range of the 1991-2000 period.
Adding frosting to the cake, Gaibler told members of the Southern Crop Production Association at their annual meeting at Hilton Head, S.C., “The U.S. economy has been improving well, and we're seeing strong prices for cotton, soybeans, etc., with a dramatic improvement in livestock prices.”
He says current market fundamentals point to continuing tighter supplies, despite near-record corn and soybean crops this year, and “we think the supply-demand situation will continue along the same lines.”
Global grain production and consumption figures have become increasingly important, he says, as world commodity markets have become more integrated.
Coming off 1996-97, high commodity prices were encouraging increases in global production, with corresponding buildups in global grain stocks. “Beginning the 1998-99 year, we were looking at ending stocks near levels as high as the mid-1980s.”
Starting in 2000, however, world consumption began to outpace production and for 2002-03, Gaibler says, “Our projected consumption will exceed global production by some 200 million metric tons.
“Looking at the estimated stocks-to-use ratio, we now have about a 61-day supply of coarse grains for use worldwide. That compares with 100 days of use just two years ago. We haven't experienced levels like that since 1973-74.”
A significant difference now: Most stocks are in the private sector, rather than government held.
“I don't want to be an alarmist,” Gaibler says, “but if we were to have a shortfall anywhere in the world, due to weather or other problems, we could see a very sudden change in prices.”
Underpinning the upmoves in demand and farm income, he notes, is a 2004 forecast for near-record exports.
“Our forecast is for nearly $57.5 billion, not far off the $60 billion record in 1996. It's important to note that, of that total, $36 billion is for high value exports. We've seen a relatively steady growth of high value exports as a percent of total exports.
“A significant portion of our U.S. food system capacity is already devoted to export sales, and that capacity is growing faster than our domestic consumption, which further reinforces the fact that the future of American agriculture is dependent on our maintaining existing export markets and creating new ones.”
The array of payments from 2002 farm bill provisions has pumped roughly $12 billion into the farm economy to date, Gaibler says. “If the legislation isn't changed and remains in effect throughout its intended life, it will provide $183 billion over the current baseline of spending.”