FAPRI: ACRE Favors Midwest Producers

March 5, 2009 06:00 PM

Pro Farmer Editors

The Average Crop Revenue Election (ACRE) program is likely to payout funds to farmers in the Midwest while the traditional farm program will likely be of more help to southern growers, according to analysis of the program by the Food and Agricultural Policy Research Institute (FAPRI). The group made the observations in their annual baseline projections they are detailing at a briefing this morning.

FAPRI sees payouts under ACRE of $2.5 billion for 2009 crops and $2.3 billion for 2010 crops.

All sectors of U.S. agriculture will face volatility in prices and continued high production costs, FAPRI said. "‘Volatility' is the word that best describes agricultural markets," said Pat Westhoff, FAPRI co-director. "After a record-breaking year in 2008, in 2009 the drops in crop and livestock receipts outpace any lowering of production costs."

FAPRI projects that low prices can cut U.S. net farm income by $18 billion in 2009. Income is expected to recover slightly in 2010. However, a return to 2008 levels is not expected before 2014.

They base their outlook on a recovery in the general economy in 2010, Westhoff noted.

Overall, crop farmers, with higher returns from grain, fare better than livestock producers. FAPRI sees weakening global demand trimming acres planted to the 12 major crops by 4 million in 2009.

CORN: The FAPRI baseline assumes biofuel taxes, tariffs and mandates stay in place. The much-discussed ethanol biofuel mandates slow declines in grain prices. While corn exports and feed use decline, corn for ethanol continues up to meet mandates in the 2007 Energy Independence and Security Act. While corn futures prices topped near $8 per bushel last summer, they fell below $4 by November. The average farm price is projected at $3.74 for the crop harvested this fall. By 2017, FAPRI projects more corn will go to fuel than will be fed directly to livestock. Corn prices average about $4 per bushel over the next decade, with about 80 percent of results between $3 and $5, according to the computer runs performed by FAPRI to generate their baseline.

SOYBEANS: The industry will face lower demand from poultry and livestock feeders. Also, with lower global demand, soy oil prices declined sharply this year. More soy oil will be diverted into biodiesel. Soybean farm prices drop from $9.37 per bushel to $8.76 for the crop harvested in 2009. Lower petroleum prices lead to lower biodiesel prices. Existing excess biodiesel production capacity also lowers prices, even as use increases with federal mandates. Narrow margins discourage building future capacity.

DAIRY: Milk prices, led by faltering world demand for U.S. dairy products, are forecast at near-historic lows in 2009. "The worst profit ever is not a record U.S. dairy farmers want to break,” said FAPRI analyst Scott Brown. Average prices in 2008 ran at more than $18 per hundredweight, with peaks over $20. FAPRI projects an all-milk average in 2009 at $13, with variations around the average dropping to $11. Strong international demand for all dairy products led to record-high domestic milk prices. When world economies collapsed and the U.S. dollar strengthened, weak U.S. exports followed.

HOGS: Hog producers coped with plentiful production and rising feed costs by selling more pork overseas. However, record-high feed costs, particularly corn, have cut margins. Weaker domestic and global demand resulted in hog farmers suffering their worst profits since the record-low prices in the late 1990s.

CATTLE: Cow-calf producers responded to lower prices by culling cows, reducing feeder calves going to feedlots. Cow numbers went down 13 percent from the 1996 peak. Contraction will be the theme in 2009 as the U.S. livestock industries search for higher output prices to offset higher production costs, Brown said.


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