U.S. farm income is expected to rise significantly from 2002 to 2003, but will rise only marginally over the next 10 years, according to a Food and Agricultural Policy Institute report.
The report, FAPRI's 2003 U.S. Baseline Briefing Book, is not a forecast of what will happen, but a projection of what could happen under a particular set of assumptions including:
- Average weather conditions prevailing in the United States and around the world.
- U.S. and world economies growing as projected.
- Productivity increasing in line with previous trends.
One highlight of the report, which was released in early March, is the return of net farm income to more normal levels in 2003, after an off year in 2002, according to Brian Willott, FAPRI research associate. “We show that income is coming back in 2003. That's the major story out of the baseline.”
The decline in income was due to a $10.6-billion drop in livestock receipts, reduced government payments due to higher prices and slow signup for 2002 farm bill payments, according to Willott.
Better livestock prices and production and a $5-billion increase in farm payments indicate that farm income “will be back in 2003, up to $47.9 billion, compared to $32 billion in 2002.”
The baseline report is bearish in the short term for corn, beans and wheat but contains some good price news for cotton and rice, noted Willott. Grain prices moved this year up after dry weather in 2002 curtailed production in the United States and in other places around the world. “We assume normal weather in our baseline. So the drought breaks and prices move back down.
For 2003, the report projects cotton acreage close to 14 million acres — and rebounding cotton prices. “Stocks for cotton are still fairly snug, which is giving us some support. Prices have really been in the doldrums. We see (in the baseline) that prices are better than 46 cents a pound. If you look at the Board of Trade today, you would think that forecast is already too low.”
Willott noted that 2002 “was a very tough year for rice producers with cash rice prices averaging about $3.90 per cwt. That's pretty pathetic when you get rice prices down to the range of wheat prices. For 2003, we see rice prices above $4 to a $4.44 average which will definitely help farmers returns.”
For long term, “we don't see corn prices gaining as much as we've forecast in years past. We see the season average farm price for corn at 10 years out at only $2.25. Our export picture for corn is not as bullish as it used to be when everyone in the world thought China was going to buy a lot of grain every year.”
The long-term picture for soybeans “is going to be tempered by the outlook for South America,” Willott said. “We show soybean prices in the last year of our baseline at $5.19.
“For cotton, prices are going to be good in the medium term, but for the long term they stay fairly flat above 55 cents. But there are lot of problems in the domestic milling industry for cotton where some of our demand is going overseas.”
Net farm income is projected to grow only modestly over the 10 years of the baseline, according to Willott, from about $48 billion in 2003 to a little over $50 billion in 2012.
“There will always be sectors that do well and individual farms that do well,” Willott said. “What it shows overall is that (the next 10 years) will not be the golden age that people used to forecast would be right around the corner for agriculture.
But a bullish U.S. scenario could come true, “if we see more export growth than this baseline assumes. And we need to see more domestic growth that this baseline assumes.
“For example, we don't assume that there is a renewable fuels standard for ethanol that would require some ethanol in all the gasolines. If that comes along, that changes this baseline. Then we would start talking about a lot more domestic demand for corn.”
The baseline report doesn't assume any extremes in supply and demand either, and perhaps it's best that agriculture not get too optimistic or pessimistic about the coming years.
“It's funny how perceptions have changed from ‘China is going to help us’ to ‘Brazil is going to kill us’ in the short term,” Willott said. “We were probably too doggone bullish (about China) and we're probably too doggone bearish (about South America) now.”
More on the report:
- Reduced 2002 production has led to higher prices this year for corn, soybeans and wheat. Assuming a return to normal yields, projected prices for all three crops are projected to fall in 2003-04.
- Over the next five year years, average market prices are slightly above loan rates for corn, soybeans and wheat but below loan rates for cotton and rice.
- Higher crop prices and returns will lead to a 3.7-million acre projected increase in total area planted in the United States to 10 major crops in 2003. From 2004 to 2012, the total area planted is projected to be stable at 255 million acres, a level similar to the 1999-2002 average.
- Projected net outlays by the Commodity Credit Corporation total $175.8 billion over fiscal years 2003 to 2012.
- Including crop insurance and conservation programs, total mandatory outlays total $225.2 billion over fiscal years 2003 to 2012.
FAPRI prepares a set of baseline projections that provide information about the outlook for agricultural markets, farm program spending, farm income and a variety of other indicators. The baseline will serve as the point of comparison for analyses of alternative policy options.
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