Gentlemen, start your ag engines

Do you want the good news or the bad news?
Thing is, you can’t separate the two, when you talk about farm economics.
The USDA’s 2006 Agricultural Outlook Forum, held last week in Washington, dissected everything and anything related to farm markets and income. And the beauty of it is, in this high tech world, most of the presentations and speeches are online for even us mere peons to digest.
On the plus side, domestic and foreign demand for most U.S. farm products is solid, and real estate values (and farm net worth) will rise in 2006. And even though crop supplies are high, prices remain surprisingly strong.
On the down side (where to start?), the Department of Energy projects diesel and natural gas will cost 4 percent to 5 percent more, on top of the 35 percent and 20 percent increases, respectively, in 2005. On the farm, that impacts diesel, natural gas, propane and fertilizer.
The industry also faces rising interest rates, world trade negotiations, bird flu and a host of nonfarm issues.
‘Financial challenge.’ The coming year will be more of a “financial challenge”, to use the words of USDA’s Chief Economics Keith Collins, for U.S. agriculture than in recent years.
Collins predicts farm income will drop this year and the farm economy will contract.
“There is not an impending financial crisis in U.S. agriculture,” Collins said during the forum, “yet there will be greater financial stress for an increasing number of crop producers in many regions.”
We’ve had strong crop prices and near-record production in 2003 and 2004, and we’ve had record livestock and milk prices in 2004 and 2005. Collins doesn’t look for that to continue. In fact, he predicts farm household income will decline for the first time in seven years.
What now? You can look at everything from a doom-and-gloom perspective, but that doesn’t help. And you certainly can’t ignore what might be coming. But you can sit down, take a hard look at your farming operation, regroup and retrench.
U.S. Ag Secretary Mike Johanns put it this way last week: “We all make better decisions with better information.”
Do you know your cost of production? If you raise livestock and crops, do you treat them as separate enterprises? Do you know the relative profitability of each? Are you on top of your marketing?
What is it you do best, and what could you contract out to be done more profitably? Can you diversify to build demand?
If you’re in it for the long haul, getting through this year (and others like it) will require tenacity, intensity, resiliency, and drive. No one will do it for you.

Duly noted

In 2005, government payments to producers were a record high $23 billion.

Producers’ energy and interest expenses are expected to rise in 2006 by more than $4 billion, or 10 percent.

In 2006, energy is expected to add 5 cents to national average corn operating costs, compared with a year ago, and 21 cents, or 45 percent more, than costs two years ago.

Farm real estate values will rise 6.5 percent in 2006. The debt-to-asset ratio at the end of 2006 is forecast at 13.1 percent, the lowest in 45 years.

The all-milk price is forecast to average $13.45 per hundredweight in 2006, down more than 10 percent from 2005.

Source: “Outlook for the Farm Economy,” Feb. 16, 2006, Keith Collins, chief economist, USDA

(Farm and Dairy Editor Susan Crowell can be reached at 800-837-3419 or at editor@farmanddairy.com.)