2000 ECONOMIC RECAP.

Editors note: According to Donne Agricultural Services' chief economist, there are seven significant factors that defined agriculture in 2000. Here's a recap of key events that shaped the agricultural markets and their impacts:

1 GOVERNMENT PROGRAMS

Times have been tough for U.S. farmers over the last couple of years, but they would have been far tougher without government programs. During fiscal 2000, government support totaled a record $28 billion. The money was provided under a variety of provisions of the 1996 Farm Bill and ad hoc emergency payments to offset the effects of low prices and natural disasters. Clearly, economic conditions for many farmers would be very poor without the government assistance.

2 STRONG DEMAND

The high production levels dominate the markets and mask record levels of demand. Corn demand could reach 10 billion bushels this year, but carryover stocks will still rise to more than 2 billion bushels. Soybean exports are projected to exceed 1 billion bushels for the first time ever and total use could exceed 2.8 billion bushels. Clearly, an impressive and growing demand base underlies the market, but the effects of the strong demand have been swamped by large crops.

3 DROUGHT MOSTLY THWARTED 

At the beginning of 2000, many forecasters, including the government forecasters were predicting a serious drought would hit major producing regions this past summer. Parts of the country experienced drought conditions that rivaled the disasters of the 1930s, but the heart of the Corn Belt was largely spared. Crop yields were slashed across the southeastern part of the U.S. and late season drought hurt production prospects in the Plains states. The effects are lingering and much of the hard red winter wheat crop for 2001 is being planted into bone dry soils.

4 U.S. AND WORLD STOCKS

While U.S. crop carryover stocks are large, and in some cases rising, world stocks continue to shrink. According to the most recent USDA estimates, wheat and coarse grains stocks outside the U.S. will decline significantly in 2000-01, down about 30 million tonnes year over year. The world wheat stock-to-use ratio will fall to the lowest level in decades, but the tightening world balance has done little to move prices higher.

5 LIVESTOCK MIXED

This past year was a mixed bag for U.S. livestock producers. Hog producers made money all year, after more than 2 years of consistent losses. Calf and feeder cattle prices remained strong, providing another year of solid returns for that segment of the cattle market. Cattle feeders started the year with good profits, but returns have dropped below break-even levels for at least the last 5 months and profitability will remain elusive until spring time at least. Livestock cash receipts will be up this year. Feed costs have been low.

6 PRODUCTION EXPENSES

Farmers have faced a surge in production expenses this year. Fuel and energy prices have soared, and this is an important factor for production agriculture. The higher crude oil prices will push production expenses up by at least $3 billion this year. Now natural gas costs are about double year ago levels and farmers will face high priced fertilizer prices this fall and into spring. Other costs will also be higher, so even with record government payments, net cash farm income will be steady with a year ago at best.

7 ELECTIONS

Elections this fall will have important implications for the future of farm policy. If the democrats win control of Congress, efforts to rewrite farm policy will gain momentum in 2001. If republicans retain control, the current farm law will probably remain in place through the 2002 crop year. Either way, the people that are elected this fall will be the people that draft the next farm legislation. With government payments currently accounting for nearly half of net cash farm income, the outcome of the policy debate may be crucial to the farm sector over the next several years.

OUTLOOK

The outlook for the agriculture sector for the next couple of years is closely tied to weather conditions. Under good weather condition, U.S. farmers face the age old problem that they can produce more than they can sell profitably. But demand has strengthened significantly and world stockpiles are shrinking. If yields are poor next year, there would be a dramatic turn in prices and profits for U.S. farmers.

Rich Pottorff is chief economist with Donne Agricultural Services Co., St. Louis.