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Agrimarketing : January February 2008
20 AgriMarketing January/February 2008 THE AG ECONOMY Editor's note: Last year, U.S. ag producers achieved a new net farm income record of nearly $90 billion which is a 50% gain over 2005. Although individual commodity prices have had higher prices in the past, they were also accompanied by lower supplies. 2007 was different: high prices and high production---the perfect formula for the ag economy. How are things shaping up for 2008 and beyond? Here are the comments and forecasts from respected and widely followed analysts. OVERALL AG ECONOMY by Rich Potorff, Doane Advisory Services Co., St. Louis, MO email@example.com In many ways the U.S. agriculture sector is booming. Both domestic and international demand are strong, prices are high and most farmers pro- duced high yields in 2007. With all of the good things hap- pening last year, net cash farm income for 2007 was at or very near record high levels and solidly above average. As we start the new year there are few reasons to expect the good times to end in 2008. The crop sector is facing very strong demand and tight supplies. Prices are high and in general should remain high for 2008. Exports are strong for most crops and the biofuels industries are supporting domestic use. Corn exports will be record high this year and world grain stocks have dropped to very low levels. World crop production has fallen short of use in seven of the last eight years and the tightening supplies will keep upward pressure on crop prices both here and around the world. Things are a little tougher for livestock producers. Feed costs are high and production of beef, pork and poultry are all rising. Profits are best for milk producers where strong domestic and export demand have supported prices. Dairy cash receipts were up 50% year over year in 2007. Meanwhile the cattle herd expansion has not gotten back on track after the 2006 drought forced many producers to reduce their herds. Hog producers will likely continue to lose money until this summer when supplies are back under control. Efforts to reform farm programs generally failed and the safety net for producers of program crops remains in place. However, with strong crop prices, farmers will rely less on gov- ernment payments than they have in recent years. The increase in the Renewable Fuels Standard virtually ensures that the biofuels industries will continue to expand, keeping demand for crops high and preventing any substantial decline in crop prices. In addition to good cash flow and high farm income farmers are seeing their assets rise in value. Soar- ing land prices have pushed farm equity to more than $2 trillion with further gains likely. Things are never perfect and some farmers will still find reasons to complain but overall the agriculture sector is very healthy and will probably stay that way throughout 2008. GRAINS OUTLOOK by Dan Basse, AgResource Co., Chicago, IL firstname.lastname@example.org Never before have world grain prices been so high at the start of a new calendar year. The combination of rising global caloric intake due to economic globalization and surging bio fuel production amid record high crude oil prices has sent world grain prices soaring. The marketplace has to assure that world producers are expanding their new crop seeding and applying the best of crop husbandry to raise yield. Anything less than a 60 MMTs increase in 2008--2009 world grain production will fall short of demand and cause a further draw down in stocks. A sizeable stock drawdown is unacceptable. Similar to the 1970s when the Rus- sians arrived with their hoards of gold to secure grain, the world has to dramatically build production and stocks through high prices --- and near record farm profitability. Any supply dis- location would cause a spike in price as the mar- ketplace attempts to ration demand. It is important to understand that the recent post har- vest rally has been to encourage as much 2008 seeded acres as possible. Little or no demand rationing has yet been realized. However, different than the 1970s is that Russia was here one year to secure grain and gone the next. Pro- ducers/traders could not count on their demand as being structural or lasting. When Russia halted its grain purchases, prices plummeted. Grain demand growth in the mid 2000s is more balanced. China and India's rising food demand won't end without a dramatic downturn in their economies. Such a downturn is possible, but not likely. The theme for the 2008 grain markets is volatility. Rising and his- torically high prices is attracting hoards of speculators which rallies prices far higher and cause price drops that a far lower than what tra- ditional fundamental analysis would suggest. The 2008 grain market will not be for the faint of heart or thin of wallet. Daily and weekly price swings will be breathtaking during the upcoming U.S. growing season. The bullish 2007 price leader was wheat as world production declined sharply amid adverse weather in the EU, Ukraine, Australia, U.S. and Canada. 2007--2008 wheat stocks fell to their lowest levels since the 1970s which caused U.S. and world wheat prices to reach new all time highs. In 2008, yesterday's leader will be tomorrow's laggard. LET THE GOOD TIMES (MOSTLY) ROLL! Pottorff Basse
2008 Marketing Services Guide
Crop Life America