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Transcript of Agricultural Economics Economic Subject Matter Meetings.
Agricultural Economics
October 2002October 2002
Economic Subject Matter Meetings
Agricultural Economics
Departmental Update Fall 2002
• Consolidation of KFBM • Search for KFBM Program Coordinator • Faculty Positions Frozen
*Livestock Forages *Intertemporal Decision Making and Firm-Level Finance
• Infanger back from 27 months in Armenia
• Trimble left October 2 for Australian sabbatical
Agricultural Economics
Trimble’s One Year Sabbatical
• The majority of his time will be spent studying the Australia’s beef and meat goat industries.
• Involved in their “Sustainable Grazing Systems” project.
• Looking at how the project has made producers more profitable.
• Value to Kentucky producers.
Agricultural Economics
Land Value Survey
Land Values and Rental RatesSurvey of Participants in Economic Subject Matter Meetings
October 2002Would you please answer the following questions for your county? Results of this
survey will beused to supplement information collected and reported by the USDA, NASS.
Thank you!
1. What is the current average price of Agricultural Land and Buildings per acre? $______/Acre
2. How do you expect this price to change during the next year? + or - ________%
/////////////////////////////////////////////////////(Please circle increase or decrease)
12. What is the most common crop share rental arrangement
County Reporting __________________________
Agricultural Economics
• Recession Ends-Led by Consumer Spending
• Inflation Moderate • $6 Trillion Wealth lost in Stock market• Business Confidence Weak• Some Interest Rates Fall to 40 Year Lows• Trade Deficit Large• 9/11/01 and “War on Terrorism”
Macro Economic Review of 2002
Agricultural Economics
-4
-2
0
2
4
6
8
1970 1975 1980 1985 1990 1995 2000
Source: Bureau Economic Analysis
Real Gross Domestic Product1970-2002
Agricultural Economics
0
1
2
3
4
5
6
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Percent
Source: Bureau Labor Statistics
Consumer Price Index1985-2002
Agricultural Economics
0
2
4
6
8
10
12
14
16
3 Month Treasury
30 Year Bond
Percent
Source: Federal Reserve
Long Term vs Short TermInterest Rates—U.S. 1977-2002
Agricultural Economics
0
2
4
6
8
10
12Percent
YearSource: Bureau of Labor Statistics
U.S. Unemployment RateAnnual, 1970-2002
Agricultural Economics
-400
-350
-300
-250
-200
-150
-100
-50
0
50
1975 1980 1985 1990 1995 2000
Billions $
Source: Bureau Economic Analysis
U.S. Goods and Services Trade Balance, 1975-2002
Agricultural Economics
-300
-200
-100
0
100
200
300
1970 1975 1980 1985 1990 1995 2000
Billions $
Source: Congressional Budget Office
U.S. Budget Deficit/Surplus1970-2002 FY
Agricultural Economics
• GDP 3.5%
• Inflation 1.7%
• Unemployment 5.8%
• Interest Rates Down
• GDP 2.75%
• Inflation 2.2%
• Unemployment 5.6%
• Interest Rates Upside Risk
U.S. Macro Economic Outlook 2002
Compared to 2003
Agricultural Economics
0
20
40
60
80
100
120
1995 1996 1997 1998 1999 2000 2001 2002 F
Billion $
Crop Livestock Govt Payments Other
U.S. Agriculture Gross Cash Income
Agricultural Economics
U.S. Net Farm Income
Agricultural Economics
0500,000
1,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,0004,500,0005,000,000
$ 1
,00
0
Gross Revenue (w/o GP) Expenses Govt Pmts NI
Kentucky Revenue and Expenses
Agricultural Economics
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
$ T
ho
us
an
d
Kentucky Net Farm Income
Agricultural Economics
-5,000
0
5,000
10,000
15,000
20,000
25,000
1996 1997 1998 1999 2000 2001 2002
$ Million
Other
Emergency
CRP
LDP
Counter-cyclical
Direct
AMTA
Marketing LoanGain
U.S. Direct Government Payments
Agricultural Economics
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
1996 1997 1998 1999 2000 2001
Year
$ 1,
000
Other
Emergency
CRP
LDP
Counter-cyclical
Direct
AMTA
Marketing Loan Gain
Kentucky Direct Government Payments
Agricultural Economics
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
$ 1,
000
Feed and oilcropsTobacco
Meat animals
Dairy products
Poultry
Horses
Kentucky’s Cash Receipts
Agricultural Economics
0
5
10
15
20
25
1997 1998 1999 2001 2002 F
$ B
illi
on
Fertilizer
Fuel
Pesticides
Labor
Interest
U.S. Farm Sector Production Expenses
Agricultural Economics
0
50
100
150
200
250
1970 1974 1978 1982 1986 1990 1994 1998 2002 F
Year
$ B
illio
n
Non-realestate
Realestate
U.S. Farm Debt 1970 to 2002
Agricultural Economics
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
Thousa
nd D
olla
rs
Debt
Equity
Total assets
Debt and Equity for Kentucky
Agricultural Economics
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
FY97 FY98 FY99 FY00 FY01 FY02 E FY03 F
Year
Bill
ion
$
Exports
Imports
Agricultural Trade Situation and Forecast
Agricultural Economics
• ~ 12.4 to 12.7 Million acres in
Timber– 90% privately owned; New inventory
report will come out in 3-4 months
• $117 Million to woodland owners
Snapshot: Forest Industry
Agricultural Economics
No. of KML graduates: ~5,000
Number of Logging Co.: 1,481
KML Loggers/Firm: 2.52
Website:www.masterlogger.org/
Snapshot: KY Master Loggers
Agricultural Economics
• 4 Types of Insurance surveyed:– Worker’s Comp, Equipment, Trucking
and General Liability– Biggest change: Equipment insurance
cost jumped ~ 20-50%.– ~ 50% reducing deductibles or
coverage
• Some reported greatest increase was for Health Coverage.
Loggers in Insurance Squeeze
Agricultural Economics
• 30,000 employees
– 1 out of 9 manufacturing jobs
– Annual payroll of $602 Million
• Value of Forest Products made in KY: $4.5 - 5.3 Billion
Snapshot:Forest Products Industry
Agricultural Economics
• ~ 530 Primary Industries (ex., Sawmills)
• ~ 540 Secondary Industries (ex., Pallet & Cabinet makers)
• Including Logging co’s, ~ 2550 firms
Snapshot: Forest Industry
Agricultural Economics
• Stumpage Prices
• Primary Industries
• Secondary Industries
• Non-Timber Forest Products
Forest Products Outlook
Agricultural Economics
• Most Hardwood prices are about the same, no sustained changes expected.
• Prices are down slightly from last year:
– -2% for HW Sawtimber (~ $18.50/ton)
– -6% for HW Pulpwood (~ $5.00/ton)
Stumpage Prices
Agricultural Economics
Agricultural Economics
• Recent species trends in sawtimber: Cherry and Walnut up; Hard Maple & Ash down
• Cabinet design market is heading back towards darker woods
– 3-4 year cycle
Stumpage Trends
Agricultural Economics
• Hickory is gradually moving up due to Red Oak cost (lots of hickory in KY).
– High silica, dulls knives – but potential substitute for flooring (ex. Teak in Cuba)
• Yellow-poplar still strong for moulding & millwork markets.
Stumpage Trends
Agricultural Economics
• Soft maple has moved up ~ 1/3 the past 2 years (Hard maple substitute, price-sensitive).
Stumpage Trends
Agricultural Economics
• Not a lot of information about Softwoods (ex., Pines) in Kentucky
– < 7% of the volume of standing timber in the state (not counting Eastern red cedar).
• Trends probably similar to more southerly states, pulpwood going lower.
– “Wall of Wood” as plantations mature, thinnings problem
Stumpage Trends
Agricultural Economics
Agricultural Economics
• Kentucky harvests ~ 15-25 Million board feet (or more) of Eastern red cedar each year.
• Production goes into shavings, boards and 3.5” x 3.5” posts that compete with treated southern pine for mailbox posts. (50% or more of production!)
Stumpage Trends
Agricultural Economics
• Losing small & mid-size mills, but increasing the volume of wood sawn
Factors: 1.Consolidation of mills 2.Optimization of mills through
technology 3.More resaws to convert cants more
efficiently
Hardwood Sawmills
Agricultural Economics
• ~ 1200 Portable sawmills in Kentucky
• Ave. mill longevity is 5 to 6 years
– 30-40% of mills sold leave the state
• ~ 80% of owners get out, 20% buy a bigger mill
• Hard to make a living sawing only 1,000 board feet/day!
Hardwood Sawmills
Agricultural Economics
• Portable sawmills are good for specific markets or high value-added opportunities such as:
– Yellow-poplar siding
– Restoration siding for old buildings
– Gunstock blanks, spalted lumber, crotches
– Building patterns
Hardwood Sawmills
Agricultural Economics
Hardwood Sawmills
• Likely opportunity for sawyers in Quarter-sawn lumber market, but most feel it’s “too much trouble” Quartersawn (A) and
Plainsawn (B) boards cut from a log
A B
Agricultural Economics
• Boards & Staves:
– Consistent, good outlook
– Distillery business getting bigger
– CA is considering KY barrels
• Poles
– Pine peeler poles (SE KY) have a good market, but lost much pine to beetles
Other Primary HW Products
Agricultural Economics
• RR Crossties
– Hot Market!
– Big demand.
– Prices up in last 6 months, but prices tend to run hot-and-cold, can’t predict
Other Primary HW Products
Agricultural Economics
• Pallet Cants
– 4.5 Billion board feet of HW lumber was used in pallets in 1995 • (38% of total U.S. HW lumber production)
• 48% of all KY HW lumber goes into pallets!
– Very competitive market!
Other Primary HW Products
Agricultural Economics
• Pallet Cants
– Demand is up, but the market price has stayed about the same!
– KY pallet lumber is extremely cheap.
• ~10% cheaper than neighboring states!
• Ex., $245/MBF in KY vs. $250/MBF in TN, $275/MBF in W. VA
Other Primary HW Products
Agricultural Economics
• Good value-added opportunity
• Companies have continued to add dry kiln capacity, will likely continue to add more capacity.
Dry Kilns
Agricultural Economics
• Millwork (Residential & Commercial)
• Flooring
• Cabinets
• Furniture
• Pallets
Secondary Hardwood Products
Agricultural Economics
• Increasing production in last 5 years
• More/larger moulders have been added
• Yellow poplar supply is exceptional, best wood choice
• Outlook: V. good, remodeling strong
Millwork
Agricultural Economics
• Growing market, will continue to grow
• Preferred over carpeting
• Species used (in order of demand):
– Red oak
– White oak– Hickory– Hard maple
Flooring
Agricultural Economics
• Remodeling market, won’t slow down
• Very competitive, lots of small firms and a few big ones (15-20+ employees)
• Most do well with custom cabinets
• Cheaper lines coming from overseas using U.S. wood
Cabinets
Agricultural Economics
• Entertainment Center market is predicted to increase.
• Custom Built-in market is also predicted to increase.– Upgrades of older homes– Maturing families mean different
demands– Transition to Flat-screen TVs
Cabinets
Agricultural Economics
• Struggling!
• Chinese have taken a bite out of the business with cheaper labor.
• Higher-end companies have moved out of NC, TN, VA (with U.S. engineers!) to China.– Producing good quality furniture
overseas
Hardwood Furniture
Agricultural Economics
• Still good opportunities for furniture that is expensive to ship.
– Ex., Entertainment Centers, BR furniture
• Designers can standardize components like panel size, simplify production, lower costs
– BUT – not much opportunity for most KY makers to take real advantage of this, too small
Hardwood Furniture
Agricultural Economics
• KY is a real force in the pallet industry
• Increasing number of pallet mills & repair facilities (could be either good or bad …?)
• SE KY pallets are a ~little cheaper.
• Industry shakeout expected – but hasn’t occurred!
Pallets
Agricultural Economics
• Trend towards more leased pallets, standardization of specifications in the past 5 years
• Large demand for custom products, but industry doesn’t market itself that way
• “Commodity” = Low Profits!
• Industry needs better marketing.
Pallets
Agricultural Economics
• Excess capacity in KY, room to grow– Kentucky pallet plants are running at only
80% capacity.
– 75% of other states report that pallet mills run at 85-90% capacity.
• KY competitive advantage is due to low wood cost (esp. for customers in Chicago, etc.)
Pallets
Agricultural Economics
• Ginseng, Goldenseal, Black/Blue Cohosh• Mushrooms• Native fruits (persimmon, pawpaw)• Nuts (black walnut, butternut, hazelnut)• Christmas trees• Fence posts• Fuelwood
Non-Timber Forest Products
Agricultural Economics
• Ginseng:– 5 to 10 year growth needed– $300 or better per pound of dry root– Vandalism is biggest problem.
• Goldenseal, Cohoshes:– Lower value, but grow in shorter time– Goldenseal ~ $20-50/pound of dry root– Less than that for Cohoshes
Ginseng & Medicinals
Agricultural Economics
• Shiitake mushrooms are cultivated– 3” to 8” diameter HW stems– ~$5/pound for fresh shiitake
wholesale
• Morels– Mostly harvested, difficult to manage– Value is ~ $30/pound fresh
Mushrooms
Agricultural Economics
• Marketable crop in 5 to 7 years
• Mostly Scots pine or white pine is grown in Kentucky.
• Close to 14% ROI can be expected.
Christmas Trees
Agricultural Economics
• Dr. Jeff Stringer, UK Dept. of Forestry• Dr. Deborah Hill, UK Dept. of Forestry• John Cotten, KY Dept. of Agriculture• Dr. Billy Watson, Georgia-Pacific• Larry Lowe, KY Division of Forestry• Gene Parker, Hardwood Market Report• Global Wood Trade Network• Timber Mart South• Jeff McBee, Pallet Profile Weekly• Pallet Enterprise• Forest Resources Association
Acknowledgements
Agricultural Economics
Kentucky’s Tobacco Situation and OutlookWill Snell, UK Ag Economist
Agricultural Economics
World Burley Production
World Burley Production Declined 17% from 1997-2001, But Increased 6% in 2002 and is Projected to Increase 5% in
2003
Agricultural Economics
0
1
2
3
4
1997 1998 1999 2000 2001 2002
$/lb
U.S. Import
U.S. Burley Export Price vs Average U.S. Burley Import Prices
Agricultural Economics
0
10
20
30
40
50
60
70
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000
Percent
U.S. Market Share of World Burley Production and Exports
Production
Exports
Agricultural Economics
U.S. Cigarette Production, Consumption and Exports
0
100
200
300
400
500
600
700
800
1970 1975 1980 1985 1990 1995 2000
Billions
Consumption Exports Production
Agricultural Economics
U.S. Burley Import Market Share
0
5
10
15
20
25
30
35
40
45
50
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000
Percent
Agricultural Economics
U.S. Burley Demand
0
100
200
300
400
500
600
700
1980 1985 1990 1995 2000
Million Lbs
Current Demand For U.S. Burley May Be More in Current Demand For U.S. Burley May Be More in the Neighborhood of 350-400 Million Poundsthe Neighborhood of 350-400 Million Pounds
Agricultural Economics
2002 Market Outlook
• 2002 Flue Market– Prices averaging 3.5 cents/lb less than 2001– Around 40% of auction sales going under loan– Over 80% Contracted– 7% of total marketings going under loan
• 2002 Burley Market– Quality/Quantity concerns– Similar price support/contract price– 73% contracted so far– Limited pool intake, slightly lower prices ???– What about undermarketings/carryover quota???
Agricultural Economics
2003 Quota Outlook
• Sale of 50 million lbs of pool stocks will help formula– Currently around 70 mil lbs under loan– “Ideal” level is 50 mil lbs
• Leaf exports up around 20% so far in 2002, but 3 year average will not change much
• What about purchase intentions?
Agricultural Economics
U.S. Burley Manufacturer Purchase Intentions
395
511
446
361324
385424
474421
291242 225 227
0
100
200
300
400
500
600
1990 1992 1994 1996 1998 2000 2002
Million Lbs
???
Agricultural Economics
U.S. Burley Basic and Effective Quota
0
100
200
300
400
500
600
700
800
900
1000
1980 1983 1986 1989 1992 1995 1998 2001
Mil Lbs
Basic Effective
Agricultural Economics
Average Kentucky Burley Quota Lease Prices
Agricultural Economics
• 50% Drop In Quotas
• Record Lease Prices
• Pessimistic Outlook
• Aging Farm Population
• Structure– Price/lb– Base years
• Program– Modified or
Eliminated?
• Funding– Excise Taxes– User Fee
• FDA Regulation
Support forA Buyout
Buyout Issues Buyout Environment
Agricultural Economics
McIntyre Quota Buyout Bill
Quota Owner ($8/lb on 1998 Quota) Grower ($4/lb on 2001 Marketings) Payments over 5 Years/User Fee Eliminate Program FDA Regulation
Agricultural Economics
Fletcher Quota Buyout Bill Quota Owners ($8/lb on 1998 Quota) Growers ($4/lb on 1998 Quota) Individual Quota Owners – Split $ Based on Share of
2002 Basic Quota Individual Growers – Split $ Based on Share of
Average 2001-2002 Effective Quota and Marketings $2/lb Payment for Those Exiting Payments Over 5 Years/User Fee Modified Program
Licenses Safety net based on cost of production
No FDA Regulation
Agricultural Economics
Helms Quota Buyout Bill Quota Owners ($8/lb on 1998 Quota) Growers ($4/lb on 2001 Effective Quota) Lump Sum or Payments Over 5 Years Using 1999-2001 Excise Tax
Funds New Program
Price supports called Investment Protection Price (IPP) Base production levels called Historical Quota Production (HQP) Counter Cyclical Payments when prices fall below IPP Direct Payments (35 cent/lb on HQP)s financed by
assessments/user fees Loss of Farm Program Benefits/Fines for Excess Production (Burley
only) and Production in Non-Traditional Counties Advisory Board Establishes Annual IPP and HQP lbs Eligible for IPP No FDA Regulation
Agricultural Economics
Political Challenges Unity among tobacco farmers, companies and health groups Congressional challenges
Maintaining the $8/lb value of quota and justifying a “grower” payment
Anti-tobacco members who recall T-LAP funding and forgiveness on 1999 pool stocks
Spending on another farm program following the controversial farm bill
Tobacco farm benefits vs the benefits other farmers received from the farm bill
Other more pressing issues such as homeland security, war on terrorism, and budget deficit
Agricultural Economics
Opportunities for a Buyout
Farm groups committed to a consensus Peanut quota buyout Support from health groups Support from PM Non-taxpayer funds used to finance most bills
Agricultural Economics
Kentucky Tobacco Cash Receipts/Mailbox $
0
200
400
600
800
1000
1200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Million Dollars
Receipts PHASE II T-LAP
Agricultural Economics
0102030405060708090
1987 1989 1991 1993 1995 1997 1999 2001
Million Lbs
Snuff Chewing
U.S. Snuff and Chewing Tobacco Consumption
Agricultural Economics
0
10
20
30
40
50
1990 1992 1994 1996 1998 2000 2002
Million Lbs
Demand Production
Dark Fire-Cured Production vs Use
Agricultural Economics
0
2
4
6
8
10
12
14
16
1990 1992 1994 1996 1998 2000 2002
Million Lbs
Demand Production
Dark Air-Cured Production vs Use
Agricultural Economics
Gregg Ibendahl
Farm Bill Considerations
Agricultural Economics
Participate?
No
Yes
Update Acres?
Update Yield?
Yes
No
Yes
No
Decisions
Agricultural Economics
Participate?
2002 PFC Acres + Oilseeds 98-01 Base
Acres
2002 PFC Yield
2002 PFC Yield
70% Update Base Yield for CC payment only
93.5% Update Base Yield for CC payment only
No
Yes
Alternative A
FSA Option 1, 2, 3, 5
These options vary depending upon how soybeans are added
Alternative B
FSA Option 4
Alternative C
FSA Option 4
Alternative D
FSA Option 4
Decisions
Agricultural Economics
Direct
Direct
Target Price
Market
MarketEffective Price
Trigger PriceCC pmt
CC pmt
Payments Under the Farm BillMarket Price > Loan Rate
Agricultural Economics
Direct
Direct
Target Price
Loan RateLoan Rate
Effective Price
Trigger Price
Maximum
CC pmtMaximum
CC pmt
Payments Under the Farm BillMarket Price < Loan Rate
Agricultural Economics
• Direct – farmers will receive this every year
• Counter-cyclical –received if the market price + direct is below the target price
• LDP – received if the county price is below the loan rate– Note: There are more opportunities for
receiving a LDP when you are also receiving a counter-cyclical payment than when you are not receiving a counter-cyclical payment
Likelihood of Payment
Agricultural Economics
Payment Schedule Under 2002 Farm Bill
Agricultural Economics
• Cash flow issues• Size of payments• Effect on land values and cash
rents• Risk effects• Does signup affect future planting
decisions?
What Does the New Farm Bill Mean?
Agricultural Economics
• Signup runs until June of 2003• Farm Planning Tool
– Analysis of farm plans with the new farm bill
• Computer decision aids workshop in December
What to do next?
Agricultural Economics
Overall Meat Situation
• Total meat (per capita) near record 220 lbs. Beef +2%, Pork + 2%, Poultry +4%
• Trade – Beef and Pork – little change on a net basis but, Chicken - exports are down 12%
• Demand – seems to holding, in spite of weak economy
• Retail prices all down - Beef 1%, Pork 3%, Chicken 6%
• Expenditures – little change, <2% of income for meat
• Marketing Margins – at historically high levels (60% for beef and 80% for pork)
Agricultural Economics
Meat Consumption (lbs. per person)
0
50
100
150
200
250
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
f USDA -
Forecasts
for 2003
Broilers
80 lbs.
Pork
51 lbs.
Beef
64 lbs.
Agricultural Economics
0.00
10.00
20.00
30.00
40.00
50.00
60.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$/cwt
2001
19982002
Kentucky Hog Prices (live weight basis)
Agricultural Economics
Hog Slaughter – the key to fall prices
• Up 3% to 4% from 2002, but down slightly from 1998’s high per capita levels
• Slaughter plant capacity near 1998’s level
• Hog Inventory (Sept. 1, 2002)Breeding –2% Market +1%Farrowings, Fall -2% Winter -1%
• Prices low through early ’03, recovery in summer
Agricultural Economics
Hog Slaughter Capacity
Head per day
Winter 1998:430,000/day
Sept 2002: 420,000/day
Agricultural Economics
0.00
5.0010.00
15.00
20.0025.00
30.00
35.00
40.0045.00
50.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$/cwt
with late 2002 and 2003 forecasts
2002 actual
forecasts
2003 forecasts
(high/low)
Kentucky Hog Prices(live weight basis)
Agricultural Economics
Futures Prices – Lean Hogs contract
$40 carcass = $30 live wt.
Agricultural Economics
Lean Hogs – Futures Prices
Oct. 2, 2002 Closing Price
Oct 02Dec 02Feb 03Apr 03May 03Jun 03Jul 03
$42.3040.7047.5252.7560.5562.8060.82
Agricultural Economics
0
20000
40000
60000
80000
70 80 90 01
1,000 head
0
400
800
1200
1600
U.S. Ky
Hog Inventory—Kentucky and U.S.
Agricultural Economics
Key Issues for the Swine Enterprise
• Short Term– Feed & environmental costs, – Price/income variability– market access
• Source verification• Humane Standards• Environmental Stewardship• Industry structure
– Tyson selling 30,000 sows– 35% raised under contract (as of 9/02)– S. American production/ international
competition
Agricultural Economics
0
50
100
150
200
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
lbs. per person
Beef Demand ('97=100)
Beef Consumption
BeefDemand Index and Per Capita
Consumption
Agricultural Economics
Cattle on Feed
On Feed: -7%
Marketings : n.c.
Placements: n.c.
Agricultural Economics
F. I. Cattle SlaughterDaily Average, By Month
• ’02 Production +3 %
• ‘03 Production -2 to –5%
Agricultural Economics
Slaughter Cattle Futures – Dec. ‘02
Contract Closing Price
Oct 02 $67.00
Dec 02 $69.65
Feb 03 $71.57
Apr 03 $71.82
Jun 03 $67.40
Aug 03 $67.70
Oct 03 $68.80
Agricultural Economics
July 1 Feeder Cattle SuppliesResidual, Outside Feedlots, U.S.
Supply increases are very unlikely for 2-4 years
Agricultural Economics
Feeder Cattle Demand Factors
• Corn Price– 7:1 impact on yearling prices– $.50 to $.75/bu. Increase in corn prices
• Expected slaughter cattle prices– Futures up for next summer– Expected declines in beef production
Agricultural Economics
Kentucky Feeder Cattle500-600 lbs.
40
60
80
100
120
Jan
Mar
May
Ju
lSep Nov
$/cwt.
2000
20012002
•Fall prices - little change (like 2000)
•2003 prices – up $2 to $5/cwt
Agricultural Economics
Feeder Cattle Futures Prices
As of 10/2/02
Contract Closing Price
Oct 02$79.50
Nov 02 $79.20
Jan 03 $78.05
Mar 03 $76.02
Apr 03$75.90
May 03 $76.05
Aug 03 $77.90
Sep 03 $77.70
Agricultural Economics
Feeder Cattle Futures – Nov. ‘02
Agricultural Economics
• Expect a buy/sell margin of -$ 9 to - $12/cwt. – (about $5/cwt. better than normal)
• Feed cost/lb. of gain: $.22 - $.25• With $85/cwt. for 400 lb. calf, breakeven
prices are $65 to $70/cwt. for 700 lb. Steer
• Returns over var. costs of $60 to $70/hd.
Backgrounding Update
Agricultural Economics
• Slaughter cattle prices expected to rise– Futures trading – April $71, June $67
• Feed costs stable through early summer
• Seasonal decline in calf prices• Breakeven in $68 - $72• Bottom Line – little expected gain
Retained Ownership Outlook
Agricultural Economics
Long Run Outlook
• Expansion has stalled, “cycle” is on hold 3 to 5 years without supply pressure on
prices• Consider the “constant heifer value”
guideline• Risk factors are:
–Economy –Trade–Health issues –Feed costs
Agricultural Economics
Calf Prices and Cattle Inventory
Agricultural Economics
Beef Cow SlaughterFederally Inspected, Monthly
Agricultural Economics
Five State Beef Initiative - Update
• Indiana, Ohio, Michigan, Illinois and Kentucky
• Through September, ’04• E. Cornbelt beef supply chain initiative• Req. include: source verification,
certification
Agricultural Economics
• Receive 50% Cost Sharing on EID’s and carcass data collection through 2003
• Receive detailed performance and carcass data that can be benchmarked with other producers
• Learn where your cattle fit in the marketplace
• Be part of a progressive, multi-state, source verified beef cattle alliance
Produce Benefits of the FSBI
Agricultural Economics
• Source verify - Use electronic ID tags (EID’S)• Health - manage calves by CPH-45 guidelines• Market calves trackable lots (ie: load lots, CHP sales, etc.)• Basic cow/calf production records
(SPA/CHAPS)• FSBI producer certification training• Genetics, environmental and humane
standards
Requirements of the FSBI
Agricultural Economics
2001-2300 calves from 142 different producers-Carcass data returned on over 17002002-5400 calves from 195 different producers-Carcass data is still being returned
Update on Participation
Agricultural Economics
• Kentucky feeders calves perform better than expected in the feedlot and on the rail
• Uniformity still needs to be improved• Carcass data is not only useful to
individual producers, it can be a marketing tool for county / multi-county groups
• Cooperation can exist within the current beef marketing system
What have we learned thus far?
Agricultural Economics
Integrated Resource Management
Agricultural Economics
Beef IRM Programs
Beef Quality Assurance
• First step of producer education
• Over 5,600 Producers Certified
• If you need a list of BQA Certifications in your county, contact KCA at (859) 278-0899
Agricultural Economics
Master Cattleman• Second step of producer
education• Divided into 10 four hour
sessions and an optional 11th “hands-on” session
• In 2002, 12 regions participated, graduating 420 “Master Cattleman”
• Regions are multi-county• If interested, Contact Alison
Smith at (859) 278-0899.
Beef IRM Programs
Agricultural Economics
Beef IRM Programs
Cow College• Top level of education offered to
producers• Five sessions• Over half of Cow College is “hands-on”• Cost: $250• Class size limited to 30 participants• Registrations are already being accepted
for 2003
Agricultural Economics
CPH 45
Kentucky’s Premium Feeder Calf Management Program
• 40 Sales Scheduled• Expecting 50,000 Calves in the
Program• For a list of sale dates, locations, and
vaccine information visit: http://www.uky.edu/Projects/BeefIRM/
Agricultural Economics
2001-2002Range of Premium: -$5.00 to $17.00/cwt
Average Premium: $6.00 to $8.00/cwt
CPH 45 Price Advantage
Agricultural Economics
Why? -$5.00/cwt
All 4 Groups Were: • 4 weights
• Light Condition• Lower Quality
*Don’t Bring These to the CPH-45 Sale*
CPH 45 The Message to Producers
Agricultural Economics
CHAPS• Production record-keeping system• Over 300 producers on the program• Cost to purchase the software $25.00• Custom processing available: $0.50/head/year• Records processed at the county office are
free• 2002 Benchmark data will be available in
January
Beef IRM Record Programs
Agricultural Economics
Beef IRM Record Programs
SPA• Financial record keeping program• Measures: Cow/Calf Enterprise,
Harvested Forages Enterprise, and Pasture Enterprise
• Free Service• Producers complete a workbook and
return it to IRM for processing• 2001 5-States Regional Summary is
currently available
Agricultural Economics
WINNERS (+%)• Leafy Let. (132%)• Peppers (49%)• Cucumbers (36%)• Strawberries (25%)• Carrots (23%)• Cantaloupe (22%)• Tomatoes (16%)• Snap beans (15%)
LOSERS (-%)• Cauliflower (20%)• Head Let. (15%)• Apples (9%)• Celery (8%)• Sw Potatoes. (6%)• Fresh F&V’s PCC
up 10% 1990-02.
Changes in U.S. per capita consumption for selected fruits and
vegetables, 1991-2002
Agricultural Economics
U.S. Sweet Corn Shipping Point U.S. Sweet Corn Shipping Point PricesPrices
1997-2001 and 20021997-2001 and 2002
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
J une J uly August SeasonAverage
$/cw
t
1997-2001
2002
Source: USDA/ERS
Agricultural Economics
Kentucky Sweet Corn Situation
• Marketing alliances for tray pack continuing
• Expanding to include foodservice products
• Growers struggled in 2001 but did better with 2002 prices
Agricultural Economics
U.S. Tomato f.o.b Shipping Point U.S. Tomato f.o.b Shipping Point PricesPrices
1997-2001 and 20021997-2001 and 2002
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
J une J uly August SeasonAverage
$/cw
t 1997-2001
2002
Source: USDA/ERS
Agricultural Economics
U.S. vs. Canadian Tomato Imports
by: Kevin Nierman, The Packer, 2002
Agricultural Economics
Tomato Imports Continue to Grow
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
1990
1992
1994
1996
1998
2000
Other
Netherlands
Mexico
Canada
Agricultural Economics
U.S. Cantaloupe Shipping Point U.S. Cantaloupe Shipping Point PricesPrices
1997-2001 and 20021997-2001 and 2002
$0.00
$4.00
$8.00
$12.00
$16.00
$20.00
J une J uly August SeasonAverage
$/cw
t 1997-2001
2002
Source: USDA/ERS
Agricultural Economics
U.S. Cabbage Average Farm PriceU.S. Cabbage Average Farm Price1997-20011997-2001
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
Pri
ce/cw
t
1997 1998 1999 2000 2001
Avg. Farm PriceSource: USDA/ERS
Agricultural Economics
U.S. Bell Pepper Average Farm U.S. Bell Pepper Average Farm PricePrice
1997-20011997-2001
Source: USDA/ERS
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
Pri
ce/cw
t
1997 1998 1999 2000 2001
Avg. Farm Price
Agricultural Economics
U.S. Fresh Market Blueberry U.S. Fresh Market Blueberry ProductionProduction
• Southern region production increases by 9% in 2002 BUT
• Southern market share decreases from 23% in 2001 due to increases in Western production
Source: North American Blueberry Council
2002
West30%
Midwest19%
Northeast30%
Southern21%
West Midwest Northeast Southern
Agricultural Economics
2002 Blueberry Production2002 Blueberry ProductionKentucky and Other StatesKentucky and Other States
Kentucky production (40 acres) equaled approximately 50,000 pounds in 2002, up from 37,000 in 1997. Production is expected to increase to 350,000 pounds (40 more acres) by 2004. (UKy, USDA)
02468
101214161820
AL AR GA KY NC OK, SC,TN
MI IN MN, MO,OH, WI
Mill
ion
Po
un
ds
Agricultural Economics
Atlanta Terminal Market Atlanta Terminal Market Blackberry PricesBlackberry Prices
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
1-Ju
n8-
Jun
15-J
un
22-J
un
29-J
un6-
Jul
13-J
ul
20-J
ul
27-J
ul
3-Aug
10-A
ug
17-A
ug
24-A
ug
Per
Do
zen
6
oz
or
1/2
pt.
co
nta
ine
rs
1999-2001
2002
Source: USDA/ERS
Agricultural Economics
U.S. Grape Vines, 1987-2002U.S. Grape Vines, 1987-2002
Sources: 1987-97: US Ag Census 2002: USDA/ERS, wineinstitute.org, CA Dept. of Food and Agriculture.
*2002 estimate includes 1,179,545 acres.
0
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
600,000,000
700,000,000
1987 1992 1997 2002*
Bearing Vines
Nonbearing Vines
Agricultural Economics
Approximate Grape Prices Paid By Approximate Grape Prices Paid By Regional Wineries, 1997-2000Regional Wineries, 1997-2000
$/ton$/ton Vidal Seyval Vignoles Chambourcin Foch Concord
IN 525-550 400-550 475-685 450-600 400-550
MI 400-600 475-600 650-700 575-750
MO 600-700 600-700 600-700 325-375
NY 450-580 400-575 450-650 800-900 500-650 275-315
OH 450-610 450-675 190-230
PA 600-700 550-600 700-750 700-1000 550-600 200-500
VA 500-700 500-700 500-700 600-750 500-700
Estimated KY Breakeven Price Per Ton: $650-1050
Source: “Business Planning and Economics of Midwestern Grape Production”Bruce Bordelon, Purdue University, http://viticulture.hort.iastate.edu/wsfeb01/business.html
Agricultural Economics
• Early indication is that Fall 2002 prices are slightly higher than usual.
• Good yields
Pumpkin Situation
Agricultural Economics
St. Louis Terminal Market PricesSt. Louis Terminal Market PricesIllinois Large Howden PumpkinsIllinois Large Howden Pumpkins
$0
$20
$40
$60
$80
$100
$120
$140
30-Sep
1-Oct 2-Oct 3-Oct 4-Oct
45-5
0 C
oun
t B
ins
2001 2002
•Production problems (disease) have resulted in lower yields and significantly higher pumpkin prices early in the 2002 season.
Agricultural Economics
Kentucky Agricultural Kentucky Agricultural Diversification Funds by CountyDiversification Funds by County
•$0-100,000
•$100,000-$199.999
•$200,000+ (Yellow counties)
Agricultural Economics
Value of KY Wholesale Floriculture Value of KY Wholesale Floriculture Sales By Grower Size, 1993-2001Sales By Grower Size, 1993-2001
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
Whole
sale
Sale
s ($
1,0
00)
$100,000+
$10,000-$99,999
<$10,000
Source: USDA/ERS Floriculture and Nursery Crops Situation and Outlook Yearbook, May 2002
Agricultural Economics
40
50
60
70
80
90
100
76 78 80 82 84 86 88 90 92 94 96 98 00 02
Million Acres
U.S. Corn Acres Planted U.S. Corn Acres Harvested
U.S. Corn Acres
Agricultural Economics
0
20
40
60
80
100
120
140
160
75 77 79 81 83 85 87 89 91 93 95 97 99 01
Bushels/Acre
ACTUAL TREND
U.S. Corn Yield
Agricultural Economics
0
2
4
6
8
10
12
79 81 83 85 87 89 91 93 95 97 99 01
BILLION BU
FEED EXPORTS F,S,I TOTAL USE
U.S. Corn Use
Agricultural Economics
Corn Balance Sheet
Agricultural Economics
U.S. Corn Stocks & Prices
Agricultural Economics
0.000
10.000
20.000
30.000
40.000
50.000
60.000
70.000
80.000
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
Mil
lio
n A
cres
0
500
1000
1500
2000
2500
3000
3500
Mil
lio
n B
u
Harvested Acres Production
U.S. Soybean Acres and Production
Agricultural Economics
Soybean Use
Agricultural Economics
0.0010.00
20.0030.00
40.0050.00
60.0070.00
80.0090.00
77 79 81 83 85 87 89 91 93 95 97 99 01
Mil
lio
n M
etri
c T
on
s
Brazil Argentina Total
Brazil and Argentina Soybean Production
Agricultural Economics
Soybean Balance Sheet
Agricultural Economics
0
100
200
300
400
500
600
79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
Mil
lio
n B
u
0
1
2
3
4
5
6
7
8
9
$/B
u
Soybean Stocks Soybean Prices
Soybean Stocks and Prices
Agricultural Economics
0
10
20
30
40
50
60
70
80
90
100
74 76 78 80 82 84 86 88 90 92 94 96 98 00 02
MIL
LIO
N A
CR
ES
PLANTED ACRES HARVESTED ACRES
U.S. Wheat Acres
Agricultural Economics
Wheat Use
Agricultural Economics
Wheat Balance Sheet
Agricultural Economics
1. Limited “Carry” in the Market 2. U.S. & Global Stocks of Grains & Soybeans
are Low3. South America is Assumed to Produce
Another Record Soybean Crop4. China: Import/Exports5. Prices are “High” Compared to Recent Years6. Government Loan Rates
Marketing Decisions
Agricultural Economics
1. Buy Puts & “Roll” to Higher Strike Prices, if –when, market rallies. Need to make some cash sales quickly when market falters.
2. Synthetic Put – short the board & buy calls. Still have to price the grain – need some targets.
3. Price grain & buy Calls – need targets at which to offset calls.
4. LDP’s not likely on corn – possible on soybeans5. Consider purchase of “out-of-the-money” calls on
soybeans to protect possible LDP &/or CCP.
Strategies to Consider
Agricultural Economics
1. Limited “Carry” in the Market 2. U.S. & Global Stocks of Grains & Soybeans
are Low3. South America is Assumed to Produce
Another Record Soybean Crop4. China: Import/Exports5. Prices are “High” Compared to Recent Years6. Government Loan Rates
Marketing Decisions
Agricultural Economics
1. Buy Puts & “Roll” to Higher Strike Prices, if –when, market rallies. Need to make some cash sales quickly when market falters.
2. Synthetic Put – short the board & buy calls. Still have to price the grain – need some targets.
3. Price grain & buy Calls – need targets at which to offset calls.
4. LDP’s not likely on corn – possible on soybeans5. Consider purchase of “out-of-the-money” calls on
soybeans to protect possible LDP &/or CCP.
Strategies to Consider
Agricultural Economics
I. Number of Cooperatives
Type 1990 1999 Change
Marketing 2,519 1,749 -770
Farm Supply 1,717 1,313 -404
Service 427 404 -23
Total 4,663 3,466 -1,197
II. Cooperative Memberships
Marketing 1,882 1,283 -599
Farm Supply 2,006 1,731 -275
Service 232 159 -73
Total 4,120 3,173 -947
Farmer Cooperatives: National Trends
Agricultural Economics
Category PercentFarm SupplyGrain and OilseedServiceDairyLivestock and PoultryFruits and VegetablesCottonOther MarketingTOTAL
37.925.811.66.42.86.70.48.4
100.0
III. Distribution of Farmer Co-ops by Type 1999
Other marketing include dry beans and peas, wool, mohair, nuts, rice, sugar, fishery and other miscellaneous marketing cooperatives.
Agricultural Economics
Farmer Cooperatives: National Trends
IV. Reasons for Decline in Coop Numbers
Reason Percent
Dissolved 44.6
Mergers/Consolidations 32.2
Acquired by Other Coops
13.9
Other Reasons 9.3
Total 100.0
*From 1990 to 1999, about 1,861 co-ops were removed from RBS list of Farmer Cooperatives
Agricultural Economics
V. Reasons for Declining Memberships1. Cooperative memberships dropped from 4.1 million in
1990 to 3.1 million in 1999. Reasons for this decline include: Decreasing number of farms and farmers in the U.S. Most farmers belong to more than one co-op and each
membership is counted. Retirements lead to double decline counts.
Problems in data collection.
VI. Other Important National Trends (1998-99) Total gross business volume handled by co-ops
dropped 4.7% from $121 billion to $115.3 billion. Total net income of $1.3 billion was down 23.8% from
$1.7 billion in 1998. The number of part-time and seasonal employees
employed by co-ops increased.
Agricultural Economics
I. KCCD—MissionII. KCCD Personnel in Place
A. Executive DirectorB. Cooperative Development SpecialistC. Office Manager
III. KCCD Center StructureA. Board of DirectorsB. Executive DirectorC. Development SpecialistsD. Office Manager
Cooperative Development in Kentucky
Agricultural Economics
IV. KCCD FundingA. USDAB. Kentucky Tobacco Settlement BoardC. KDAD. UK College of Agriculture
V. KCCD Development ActivitiesA. Feasibility StudiesB. Business PlansC. Management AuditsD. Director TrainingE. Managed TrainingF. Drafting Legal Documents
Agricultural Economics
The Management Audit
Objective Identify problems and opportunities for improving the
business Make recommendations for solving existing problems Recommend procedures for exploiting existing and
potential opportunities that will result in more efficient and profitable operations.
Identify opportunities to provide educational and technical assistance to the Board and Management.
Agricultural Economics
1. Select an Agribusiness that will benefit from Audit.2. Collect relevant operating and marketing data and
industry standards prior to the Audit.3. Review business plans, policies, financial statements, and
relevant firm documents.4. Observe and analyze all physical operations and conduct
a time and motion study.5. Interview board, manager(s), employees and selected
farmers to ascertain and evaluate goals, plans, organization structure, guidance and direction in the firm, coordination of business and operations activities, and communications within the firm.
6. Analyze financial data and the control system in the firm.
Audit Procedure
Agricultural Economics
7. Process data from the time management study information from the interviews, financial statements, and relevant documents.
8. Compare firm performance with industry standards.9. Identify problems and opportunities and make specific
recommendations for improving or solving each entity.
10. Make preliminary oral report to the board immediately after the audit.
11. Write final report and submit to board and manager.
Audit Procedure (continued)
Agricultural Economics
IV. The Alliance of Produce Growers-Shippers
Overall Purpose To support a unified network of produce shipping point
facilities that will reduce the cost of imports while maximizing profits from products marketed.
CORE Activities1. Purchase supplied together for cost savings2. Conduct joint promotions of alliance members
produce.3. Develop fresh and processed markets for alliance
members to cooperatively supply.4. Transition the Alliance into an independent, self-
funded industry marketing and promotion organization.
Agricultural Economics
Relationship With KCCD The Alliance Director will work closely with KDA
Produce Marketing Specialist to design and carry out: Special Promotions Trade Show Displays Point of Purchase Materials, and Create an Alliance website featuring member
produce and facilities
The Alliance Director will report to the Executive Director of
5. KCCD who in turn shall report to KDA on progress made.
Agricultural Economics
VII. Future Challenges for cooperatives served by KCCD:A. Equity InvestmentsB. FinancingC. Product QualityD. Member LoyaltyE. Quality ManagementF. Strong Boards of DirectorsG. Hiring and Retaining Good ManagersH. Legal Issues
Agricultural Economics
This presentation was presented with the Agricultural Situation and Outlook, Fall 2002, publicationnumber ESM-28, published by the Department of Agricultural Economics at the University of Kentucky with an additional contribution from Kentucky State University in October 2002. The entire publication can be accessed on the WWW at http://www.uky.edu/Ag/AgEcon/publications/esm_28.pdf. This article presents information on the economic situation and outlook for Kentucky agriculture and is intended to assist farmers, agribusiness professionals, Extension filed staff, and others with interest in agriculture and agribusiness. Information presented here is based on the most recent information and research available. However, the rapidly changing economic and policy conditions for agriculture limit the usefulness and life span of conclusions and recommendations cited here. Decision makers should keep these facts in mind. Feel free to use the information included in this publication for other uses, but please provide professional citation about the source. This paper is published without formal review and the views expressed are those of the authors and do not necessarily reflect the views of the Universityof Kentucky, the Agricultural Experiment Station, or the Cooperative Extension Service. If you need additional information or if you would like to provide comments or suggestions about this slideshow, please contact Gregg Ibendahl at [email protected] or Larry Jones at [email protected].
The end!
University of Kentucky, Department of Agricultural Economics400 Charles E. Barnhart Bldg., Lexington, KY 40546-0276
Phone: 859-257-5762, Fax: 859-323-1913URL: http://www.uky.edu/Ag/AgEcon/