Academic journal article Economic Review - Federal Reserve Bank of Kansas City

The Farm Slump Continues

Academic journal article Economic Review - Federal Reserve Bank of Kansas City

The Farm Slump Continues

Article excerpt

The century's final year was one of frustration for U.S. agriculture-certainly not the way the industry had hoped to close the millennium. Farmers took pride in their productivity, turning out the fourth bin-busting crop in a row and more red meat and poultry than ever before. But the big production collided with a still sluggish world market, holding down farm commodity prices. Still, farm income held up well above the average for the past decade, due to another big financial assistance package from Washington.

The farm slump will likely continue in the year ahead, although prospects for livestock and crop producers diverge widely. Livestock producers could have a very good year, with low feed costs and robust consumer demand boosting prof its, but weak crop prices could drag down farm income. The farm export picture is beginning to brighten again, but too gradually to offer much relief in 2000. With exports soft and the nation's granaries still full, weak crop prices could be the norm. As in the last two years, help from Washington may determine whether farm income in 2000 rises or falls.

I. BIG SUPPLIES AND WEAK PRICES IN 1999

In many respects, the nation's farmers had a good year in 1999. Crop producers dodged numerous weather problems to produce record or nearrecord crops. The big crops drove down crop prices and profits, however, cushioned only by another big package of government financial help. Livestock producers turned out more beef, pork, and poultry than ever before. Cheap feed grains and robust consumer meat demand boosted their profits, drawing to a close the big losses of the year before.

Washington bolsters farm income

Farm financial conditions improved in 1999, compared with the 1998 downturn. Weak crop prices continued to define the industry's slump, but farm income for the year was surprisingly robust and the farm balance sheet steady-thanks to generous help from Washington. Incomes varied widely across the industry, with farmers reaping good crops and marketing them successfully faring better than others. Crop prices slid through the year, challenging producers to price their crops profitably. For many crop producers, government payments spelled the difference between modest profits and big losses. Livestock producers generally fared better than the year before, when weak hog and cattle prices triggered huge losses.

In the end, farm income turned up in 1999, landing well above the average for the previous years of the decade. Net cash farm income, which measures cash receipts less cash expenses, is expected to total a solid $59.1 billion, up 72 percent from 1998. Adjusted for inflation, cash income was up about 5 percent. Net farm income, a broader measure that also takes into account depreciation and inventory changes, was up about 9 percent from the year before, at $48.1 billion (Chart 1).'

A turnaround in livestock profits, fueled by cheaper feed and stronger livestock prices, accounted for part of the renewed strength in farm income. Cattle feeders saw slim profits at the beginning of the year gradually widen to more than $60 per head, a welcome rebound from losses of $100 to $150 a head the previous year. Lower feed costs also helped hog producers, but the industry's big expansion in recent years held hog prices at barely break-even levels for most farmers. Nevertheless, break-even was a big improvement from the year before, when the industry's expansion outran slaughter capacity and drove hog prices to the lowest level in decades.

The year was a rough one for crop producers. Prices for the nation's major crops slid throughout the year, offering only an occasional uptick as a short-lived marketing opportunity. Farmers who priced their crops early generally fared better than those who waited. Many held their crops after collecting government "loan deficiency payments," which pay the difference between a government support price and the lower market price. …

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