FAPRI Says Agriculture's Economic Outlook is Strong

Annual report predicts increased revenues for crop producers.

The Food and Agricultural Policy Institute delivered its annual 10-year economic outlook to Congress and the USDA on Wednesday. According to the report, grain producers can expect continued increasing revenue, while livestock producers face increased feed costs.

"Agricultural market outlooks appear more uncertain than in past years," says Pat Westhoff, co-director of FAPRI at the University of Missouri. "Petroleum prices and biofuel policies drive most of the changes."

Rising ethanol production that pushed corn prices higher in 2007 led to a big increase in corn acres. However, the report expects a shift in 2008 to about 6 million more acres of soybeans and 2 million acres less corn. The trend toward greater production of ethanol and biodiesel is driving the market for those commodities and is expected to continue due to new energy legislation.

"There’s no doubt but what the energy bill has greater influence on crop prices than a farm bill," Westhoff says. "World energy demand drives the economy, which shifts U.S. domestic uses and world trade."

With the high demand for corn and soybeans, livestock producers are feeling the pressure of record feed prices. FAPRI livestock analyst Scott Brown says returns on beef cattle have declined in the past two years and in 2008 cattle numbers will decrease, and cow-calf returns will be in the red.

"Higher corn prices force feedlots to lower what they can pay for feeder cattle," Brown says. "Coming years could be financially difficult as high and rising input costs coincide with lower feeder cattle prices."

Prices for hogs and dairy products are predicted to be lower, with hogs expected to be $44 per hundredweight and milk prices dropping from the 2007 record price of $19 per hundredweight.

"Projecting future prices was uncertain in the best of times," Brown said. "We assume average weather in the baseline; however a drought in any year when grain stocks are tight would change everything. We know we will be wrong, we just don’t know when and how much"

The independent agricultural analysis is requested annually by Congress. The report was a collaboration of the agricultural economic departments at the University of Missouri, Iowa State University, Texas A&M, Texas Tech, the University of Arkansas, and Arizona State University.
The full report is at http://www.fapri.missouri.edu/.

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