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Agriculture forecast.

Agriculture Forecast

The year 1989 was above average for Montana agriculture, with farm labor income probably between $450-$500 million. Under average weather conditions, 1990 should be similar to 1989.

Since cattle, wheat, and barley generate about 85 percent of the agricultural cash receipts (including government program payments), this forecast will concentrate on those commodities. It is too early to include climatic conditions, so this discussion will concentrate on commodity prices. Trends in land prices and agricultural finance provide insights into the agricultural sector's health.

Wheat and Barley. Wheat and barley prices usually move in a parallel manner since they are close substitutes in production. Feed grain prices serve as a floor for wheat prices because if the price of wheat is relatively low, wheat will be fed to livestock rather than used for human consumption. The more important influences on wheat prices are stocks held over from the previous year, current production, exports and exchange rates.

Current U.S. wheat stocks are relatively low and will continue to drop a projected 443 million bushels by June, 1990. The lower stocks should put some upward pressure on prices. The amount of pressure will depend on what actually happens and what is expected to happen to exports in late 1990 and beyond. Exports will depend upon "give away" programs as well as sales which are heavily influenced over the long run by exchange rates. Current optimism in wheat prices due to reduced stocks must be dampened by the dollar's recent gains. Therefore, it is likely that the price of wheat will be about $4/bushel and barley about $2/bushel.

Government payment will be less of a factor. A wheat price of $4/bushel means government payments will be substantially reduced.

Cattle. Unlike grain, beef is almost totally a domestic market with little export or imports. Beef cow numbers provide an indicator of future beef production which, to a large extent, determines beef prices. Since 1986, beef cow numbers have been relatively static -- about 33-34,000,000 head. Furthermore, replacements continue to hover around 5,150,000 with a small recent increase. Current cattle price levels are likely to continue for another year. However, current prices are sufficiently strong to encourage cattle herd expansion, which will eventually depress prices. It is difficult to predict when that expansion will occur, but the impact on prices from expansion would be lagged over at least a year and possibly two to three years.

Land Prices. Montana's land prices may have bottomed out in 1988--one year after the national low point in 1987 (see table 1). Cash rent-to-value ratio in Montana is above 8 percent, which is higher than the expected long-term average of 6.7 percent. Land prices are expected to rise at a rate only slightly higher than the rate of inflation.

Agricultural Finance. Farm debt (table 2) has declined dramatically in Montana since 1984. While it is unknown how 30 percent of the debt was liquidated, it is likely that a substantial component came from farmer reserves.

Farm labor income is likely to remain in the $450-$500 million range in 1990. Grain stocks, exchange rates, and beef cow numbers should be longer term indicators of Montana's agricultural economy.

Myles Watts discussed the state outlook for agriculture. He heads the Agricultural Economics and Economics Department at Montana State University, Bozeman.
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Title Annotation:1990 Economic Outlook Seminar
Author:Watts, Myles
Publication:Montana Business Quarterly
Date:Mar 22, 1990
Previous Article:Montana's natural resource industries.
Next Article:Recent developments in Montana's metal mining industry.

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