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Extension predicts upbeat ag outlook

Friday, February 10, 2012

The University of Missouri Extension Department of Agriculture and Applied Economics has issued an optimistic outlook for 2012.

The department has completed 14 seminars for agriculture lenders around the state. Several factors supported a continued optimistic view for producers and lenders.

"When a farmer says things are not too bad, that is usually an indicator that things are pretty good," said Mike Monson, chairman of the University of Missouri's Department of Agricultural and Applied Economics.

According to the U.S. Federal Bank in Kansas City, farmland prices have increased 40 percent since 2004, in a period when rents have increased 17 percent.

The Fed cautioned that a drop in corn prices to more "normal" levels could reduce the price of farmland by 20 percent. Higher interest rates and a stagnant economy could reduce farm values as much as half. Extension economists viewed such a scenario as one of the least likely in 2012.

Economists Daniel Madison and Scott Brown with the Food and Agriculture Policy Research Institute (FAPRI) said high demand and a limited supply of farm products will continue to drive the economic outlook.

"Producers who have been able to market near or above normal amounts of their products are seeking very strong income," Madison and Brown wrote in their outlook piece for the lending conferences.

They expected net farm income in Missouri to approach $3 billion in 2011, one of the most profitable in history and just behind records in 2004 and 2008. They anticipated 2012 totals would grow to $3.4 billion.

Hay prices continue to rise due to drought conditions in Texas and Oklahoma. Beef producers in those states liquidated herds due to a lack of feed. Cattle producers in Missouri, which has the third largest beef cow inventory of any state, may benefit from the situation, Madison and Brown wrote.

Public demand for meat and dairy products is expected to keep growing. Demand did not offset financial pressures due to high feed costs in the past year, they said. Pork, poultry and milk producers should not expect to same profitability over the next two years that cow-calf operators will see, they said.

Even with a positive outlook, the economists warned that risks for producers remain high. The cost for putting in the 2012 crop will be the highest on record. Fertilizer and seed costs will increase substantially over 2011 levels. Costs for new equipment and land remain high. Producers seeking to expand face serious risks of financial distress if conditions change.

Crop outlooks

Several economists provided forecasts for different crops in the year ahead.

* Adverse weather impacted grain and oilseed production for the second consecutive year in 2011. Economist Patrick Westhoff expected the market would remain very sensitive to supply and demand shifts.

* For the first time, more U.S. corn was used to make ethanol and its co-products in the 2010-11 marketing year than was fed to U.S. livestock. Ethanol production was expected to set a record in 2011. Corn estimates in September showed the size of the crop surpassed market expectations and would equal the 2010 harvest,

* Sales of corn, wheat and soybeans to foreign markets was expected to drop in 2012 in part because other countries produced large crops. Chinese demand for grains and soybeans continues to grow.

* Soybean production was expected to drop significantly in 2011 with fewer acres planted. U.S. supplies would fall by around 200 million bushels. A lower supply would result in higher prices.

* The 2011 drought seriously impacted wheat-producing states. Higher production in Russia and other exporting countries would keep prices down in world markets.

* Cotton markets reached and fell back from record highs in 2011. Drought conditions destroyed about a third of the acreage planted. Global prices were expected to increase despite large crops in other countries.

* Lower prices and severe flooding sharply reduced planted rice acreage in 2011, resulting in the smallest crop since 1998. International prices were expected to stay high with governments limiting exports in the face of higher prices in other grains.

Livestock outlooks

Supplies and grain prices will have a major impact on livestock profitability in the coming year, according to Extension specialists.

* The average price of slaughter steers in 2012 is expected to surpass the 2011 record. Cattle prices continue to be driven by a tight beef supply. The 2011 U.S. calf crop was the smallest in 50 years, leading to an even smaller calf supply in 2012. Cattle slaughter is expected to be cut back for the next three years.

* The hog inventory rose slightly after three quarters in 2011. The September breeding herd was the biggest since December 2009. The fall 2012 pig crop is expected to be well above 2011 levels. Increased slaughter in the fourth quarter may cause a sharp drop in hog prices.

Dairy forecast

Brown and Madison said Missouri dairy cow numbers dropped by 6 percent in 2011 despite record annual milk prices. Higher production costs kept profitability from hitting record levels as well. They expect milk production in the U.S. to grow another 3 billion pounds in 2012 with dairy herds remaining at the same size.

Feed costs and international demand will become big factors in either strengthening or weakening profitability in the coming year.

Bob Markovics, vice president of commercial lending with UMB Bank in Monett, places great credibility in the Extension's annual forecast. He expected to share details of the outlook report with his customers in preparing for the kind of year local grain and livestock producers will have.

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