Story - The Meade County Messenger


Vol. 119. No.52	DECEMBER 29, 2010

Ag economy expected to pick up in 2011, UK economists state

Farmers were blasted with record-high temperatures and an economy that showed limited improvement last year, but professors from the University of Kentucky College of Agriculture think the 2011 year could be better.

“Larger volumes of grain exports at higher prices, as well as improved horticulture and meat exports, are behind this,” UK Department of Ag Economics professor, Craig Iafanger said.
Iafanger was one of several professors giving a 2011 forecast during the Dec. 1-4 annual meeting of the Kentucky Farm Bureau Federation in Louisville.

U.S. agriculture also fared well, rebounding quickly from the effects of the commodity market “crash” in 2008 and the serious global recession in 2009, he said.

“The U.S. Department of Agriculture is projecting U.S. net farm income to be up 24 percent this year,” he said. “Most of the increase in farm income is coming from improved market conditions for beef cattle, dairy and poultry, and recent surges in corn and soybean prices. The balance sheet for ag is strong, despite the weak macro-economy.”

Iafanger said when the nation experiences a commodities surge, a price surge isn’t far behind.

Hedging his bets somewhat, Iafanger said if the current drought conditions continue in the western and central parts of the state into the growing season, the outlook will dim considerably.

“At this point the outlook for exports remains positive into 2011,” he said. “Given reasonable weather and a slowly improving macro-economy, Kentucky’s farm cash receipts in 2011 should be in the range of $4.8-$5.2 billion, a new all-time high for gross income for the farm sector.”

Receipt growth will be fueled by increases in the poultry market, Iafanger said, as it continues to outpace the position long-held by the state’s equine industry.

“We have 85,000 farms in Kentucky,” he said. “The largest are export farms and weather-dependent and the smallest are the family farms.”

Following are outlooks for other commodities:

• Tobacco:
UK agricultural economist, Will Snell didn’t mince words when he said this past year has been challenging for tobacco growers.

“The domestic market continued to suffer from retail cigarette price/tax hikes, smoking restrictions, and the overall weak economy,” he said. “Plus, the uncertainty of Food and Drug Administration regulations likely led domestic companies to be even more conservative in their 2010 purchasing plans.”

Snell said the burley contracts decreased by 4 percent, reiterating it was a difficult and challenging growing season.

“We had a lot of concern about the quality this past year, especially during the summer,” Snell said. “For good quality tobacco, it was pegged at $1.70 to $1.80 per pound and for lower quality, the price was $1.40 to $1.60 per pound. All of the other products were paid $1 per pound.”

• Grains:
UK ag economist, Cory Walters had some good news in an otherwise sour report.

“Overall, Kentucky corn and soybean production was down, while wheat production was up,” he said.

“The good news was that prices for all three commodities significantly increased from the end of the summer to now.”

“It was a marginal year and farmers are very understanding of disasters,” he said.

“There are three things affecting the market,” according to Walters. “They’re what we know, what we kind of know and we don’t know that what we don’t know.”

On individual commodities, the corn supply was down, Walters said, adding he wasn’t sure where the ethanol discussions were heading, while soybeans increased some from the previous year and the wheat crop was slightly reduced.

Prices will be volatile, with direction influenced as information enters and uncertainty exits the market, Walters said.

• Livestock and meats:

UK ag economist, Kenny Burdine said the livestock market was comparable to years past, but it’s currently better than 2009.

In the dairy area, markets have shown considerable improvement, Burdine said.

“The real story here has been the better prices,” he said, adding Kentucky began the year wth 80,000 dairy cows, a 7 percent decrease from 2009.

Burdine predicts milk production is expected to increase slightly in 2011, but production costs are also likely to be higher.

Kentucky beef producers are hoping the drought will come to an end – soon, so they can experience a “normal” year.

With the drought this past year playing havoc with the hay crop, producers were forced to feed hay earlier, Burdine said.

“Slaughter cattle prices will remain strong, and calf prices will most likely improve into the spring and likely exceed 2010 levels,” he said.

Prices will also be higher for corn, thus the profit margin won’t be as good, according to Burdine.

“The corn price is up more than $1.10-per bushel from year earlier levels, reducing the profitability of broiler production,” he said. “Corn prices are forecast to stay high, so 2011 industry profits will be lower than 2010 profits.”

On the other hand, hog production is just coming off a remarkable summer, Burdine said.

He cautioned, however, with other feed costs increasing – and expected to rise more – hogs may be more profitable than in 2009, but not quite as healthy as the higher prices might indicate.

Throughout the United States and Kentucky, lamb numbers are down, but the story is reverse for goats, Burdine said.

“There are two times as many sheep as there are goats in the United States, but in Kentucky it is the reverse,” he said. “Goat prices are up about 25 percent.”

“While lamb imports haven’t changed much, the cost is considerably higher. This will keep lamb and goat prices at the profitable levels of 2010.”

• Horticulture:

DeWayne Ingram, from the UK Department of Horticulture, said while Kentucky isn’t a major player in this industry, it has seen steady growth, despite a difficult economy.

“There has been an increase in direct sales of products and the auctions and other wholesale channels have experienced significant growth in producer numbers,” Ingram said.

“While Kentucky remains a relatively minor produce supplier compared to surrounding states, the sales growth has outpaced that of surrounding states, especially for fruit,” he said.

A continued weak economy and relatively high input costs have impacted the landscape industry significantly, Ingram said.

“Demand has remained subdued for most green products, particularly trees, shrubs and sod,” he said.
Ingram predicts this area should see a modest rebound in 2011, as the economy continues its recovery.

“Floriculture and service-oriented enterprises should see an earlier response to the recovery, followed by nursery and sod. Gross sales for 2011 for all of Kentucky horticulture could approach the record high of $118 million observed in 2008,” he said.

In summary, Iafanger said it best.

“Kentucky agriculture is weather-dependent and trade dependent. Therefore, the economic outlook for 2011 depends on reasonably good weather and continued strength in export markets.”

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