Numbers predict an up-and-down year

When March arrives like a lamb, the old saying goes, it roars out like a lion. How then will the 2006 growing season finish if current numbers, courtesy of the USDA, show it hobbling out of the gate on weak knees and a bent back?
Six months, of course, will tell the tale, but February USDA figures begin it with some opening lines that are grim – Brothers Grimm grim.
For example, 2006 net farm income, at $56.2 billion, is forecast nearly 23 percent under 2005 income and 32 percent less than 2004. Direct government payments to farmers are projected to drop $4.5 billion, from a mind-blowing $23 billion in 2005 to “just” $18.5 billion in 2006.
Current marketing year numbers for soybeans show ending stocks at a record 555 million bushels, or an overabundance of nearly 20 percent. Soybean exports are sagging to 910 million bushels, or 17 percent lower than a year ago.
And, again, production expenses easily out-galloping inflation, up 18.5 percent sector-wide in just four years.
Bad news. As bad as these pre-season estimates now appear, some could get worse if the weather delivers favorable crops both here and abroad.
Soybeans offer a pregnant example. Our burdensome stocks and flagging exports have not given our good buddies down south one moment’s pause. USDA guesses South American 2006 soy production at 3.9 billion bushels – a 300 million bushel boost from last year’s record.
Also, market watchers are nervously eyeing cash-strapped U.S. producers to see how many switch high-cost corn acres to lower-cost bean acres this spring. If top-end guesses of 1 million acres or more switching from feed production to protein production prove anywhere accurate, soybean prices could be toast by midsummer.
The corn market would not mind giving ground to more soy. Like beans, corn is burdened by leftover supplies – 2.1 billion bushels carried over from 2004 into 2005 and 2.4 billion bushels carried over from 2005 to 2006.
Too much. Indeed, we are now sitting on 22 percent more corn than we can use, even as we load the starting gun of another year.
Last year brought drought and a loan deficiency payment of nearly 50 cents per bushel. Eighty million planted acres and good weather this year would bring a bigger crop, bigger carryover and bigger loan deficiency payments.
Like corn, wheat’s current stocks-to-use ratio is a market-dragging 24 percent. That picture, however, could change quickly.
Dry weather in the Southern Plains is hammering Oklahoma and Texas. USDA now rates 58 percent of the Oklahoma crop and 89 percent of the Texas crop as “poor to very poor.”
The drought has pushed Kansas City new crop futures to $4.50 bushels, their highest level (on monthly charts) in four years.
In fact, most grain futures have staged remarkable price rallies this winter despite bleak fundamental numbers. Much of the rise, analysts claim, has been bulled by speculators betting on unforeseen or unconfirmed market shocks like drought, increased biofuel production or unanticipated exports.
If the beans-from-buttermilk boys at the Board want to lift prices higher, it’s time, suggest many market watchers, to look for 2006 crop pricing chances.
Problems for all. Livestock and dairy producers, like their grain-producing colleagues, also face a year best described in a single, well-known, phrase: Higher production means lower prices.
Milk production nationwide is trending higher – 5 percent higher (year-to-year) in January alone. Also, more cows and more production per cow later this year will likely bring the lowest milk prices in four or five years.
Beef faces the same math. After several good years – lower slaughter numbers, a smaller national herd, limited imports from Canada and solid profits – American producers will see the reverse of all those factors in 2006.
And hogs? Given the near-complete verticalization of American pork production, does it make any difference to more than a handful of producers – let’s say the remaining six – what prices do?
Consumer food prices, however, will continue their upward arc. USDA estimates “at-home” food prices will climb 3 percent while prices for “away from home” food will rise only 2 percent.
(Alan Guebert’s Farm and Food File is published weekly in more than 75 newspapers in North America. He can be contacted at agcomm@sbcglobal.net.)

About the Author

Alan Guebert was raised on an 800-acre, 100-cow southern Illinois dairy farm. After graduation from the University of Illinois in 1980, he served as a writer and editor at Professional Farmers of America, Successful Farming magazine and Farm Journal magazine. His syndicated agricultural column, The Farm and Food File, began in June, 1993, and now appears weekly in more than 70 publications throughout the U.S. and Canada. He and spouse Catherine, a social worker, have two adult children. farmandfoodfile.com More Stories by Alan Guebert

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