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U.S. banks normally would have about $50 billion excess reserves sitting in the Fed’s coffers, says Brian Briggeman, associate professor at Kansas State university. Today, they have about $1.5 trillion on the Fed’s books. "At some point, that ton of money that’s just sitting on the sidelines is going to flow out. That is relevant to us in agriculture because of the potential for inflation and rising prices, and the way the Fed flights inflation."
BRITTON HATCHER, left, Mississippi Farm Bureau Federation, and Bob Harris, regional biologist for Ducks Unlimited, both at Grenada, Miss., were among those attending the Mississippi Farm Bureau Federation’s joint soybean, corn, wheat, and feed grains advisory committee meeting.
Two types of agriculture
“But, dissecting 2011-12, it was a tale of two types of agriculture: crops and livestock — and the income picture depends on which sector you were in. High grain prices benefited crop producers, but livestock producers were hurt by high feed costs that slashed profits.
“In 2013, USDA is projecting another banner year for net farm incomes, higher than 2012; they’re expecting plantings fence-row to fence-row, with good yields. This would benefit everyone, especially livestock, with stronger grain supplies helping to bring down feed costs.
Corn prices tell much of the story of what has happened for crop and livestock producers, Briggeman says.
“We’re nowhere near the real dollar highs we experienced in the 1970s, when we found out Russia was going to be coming into our marketplace — that had a profound effect on commodity prices, with corn reaching $12-13 per bushel on a real dollar basis.
“We’ve had productivity gains since then, which have helped to limit price, and we haven’t seen the exceptionally high prices of the 1970s. During the 1970s, we also had a lot of inflation, with rising prices for goods and services. Might we see some 1970s-type forces that would bring a surge in commodity prices today?
“When we look at where we are today, on the corn side, we can look at it as an opportunity or a headache. The high prices offer opportunities to lock in profits, but the headache of up-and-down market oscillations makes it difficult to decide when to lock in profits.”
The demand environment we’re in today is helping to bolster markets and provide solid commodity prices, Briggeman says. “Coupled with a growing global economy — not just from a population standpoint, but also from an income standpoint — there is a lot of opportunity out there that’s helping to make production agriculture a pretty appealing place to make profits.
‘But when we look at the livestock side, the picture changes quite a bit. Even in the near-term, it looks pretty tough.” Today, he notes, returns are significantly negative for Kansas City finished steers, “but high feed costs have limited profits across all livestock sectors.” Demand has also been significantly dampened.
“We haven’t seen U.S. consumers coming back to the meat counters.They continue to purchase lower cuts of meat, not buying the higher cuts of ribeyes, filets, etc., that drive a lot of the profits for livestock producers.
“As we project forward, we expect net returns to not be as negative, and to begin to return to positive territory over the next few months. But there are still a lot of questions: Will we actually see a bumper corn crop that will push feed prices down and ease the expense side for livestock producers? Will consumers come back to the meat counters and pull up the revenue side? We still aren’t seeing that happen, primarily because with the elevated unemployment rate and flat real wages, consumers just haven’t been buying.
“The livestock industry is strongly tied to the U.S. economy and its growth, but the health of the economy affects all of agriculture one way or another.”