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Agricultural forecast.

Agriculture continues to be Montana's largest basic industry, accounting for more than 30 percent of the state's basic industry employment, labor income, and gross sales. Approximately 60 million of the state's 93 million acres are used for farming and ranching. The number and size of farms has remained relatively constant over the last few years at about 23,000 farms, with an average size of about 2,600 acres.

Agricultural land values have shown a steady increase during the 1990s. In 1996, the average value of Montana farm land was $289 per acre, an increase of about 4 percent over the 1995 value. In inflation-adjusted terms, the value is nearly back to the pre-drought/depression values of the early to mid. 1980s.

The state's leading agricultural county is Chouteau County, which is also the number one county in the sale of crops and associated government transfer payments. Yellowstone County leads in the sale of livestock and livestock products.

Major Commodities

Total receipts for agriculture and the three major components of those receipts are presented in Figure 1. Montana agriculture generates about $2 billion in cash receipts. Total receipts increased about 9 percent over the 1995 level. Receipts from crops and government payments increased by 13 percent and 21 percent, respectively, over 1995. Livestock receipts were basically unchanged between 1995 and 1996. Figure 1 shows that there have been significant fluctuations in total gross receipts from year to year; however, there has been no long-term trend in inflation-adjusted receipts.

Receipts, prices, and production levels for Montana's livestock sector are presented in Figure 2. 1996 was the fourth consecutive year for declines in livestock receipts. This reflects the continued downturn in livestock prices as this phase of the cattle cycle continues. Average livestock prices received by Montana ranchers declined by 10 percent from 1995 levels. In inflation-adjusted terms, this is the lowest price received over the last 43 years. Cattle numbers in the state have increased significantly since the early 1950s and account for the increase in total receipts from livestock shown in Figure 2.

Montana cattle producers have expressed some concern about the impacts of international trade agreements on livestock prices, particularly the North American Free Trade Agreement (NAFTA), which has allowed much freer movement of cattle across the Canadian and Mexican borders. While imports from Canada and Mexico have increased, exports to other countries have also increased. So the net effect of these trade agreements on feeder cattle prices is responsible for only a small portion of the overall reduction in cattle prices.

Montana's major grain crop is wheat. It accounts for approximately 70 percent of all cash receipts from crops. Wheat receipts, prices, and yields since 1953 are shown in Figure 3. Wheat prices in 1996 decreased by approximately 14 percent over 1995 levels. The average wheat price of $4 per bushel in 1996 is still higher than the average of prices received in the last 10 years. This may reflect a flattening out in the long-term downward trend in inflation-adjusted wheat prices. It could be that export demand for wheat has caught up to the wheat production capability. The significant increase in acres planted to wheat in 1996 did not totally offset the decline in per acre wheat yields and the reduction in price. Thus the value of wheat produced in 1996 declined from the record highs set the previous year. Wheat yields have generally trended upward at about one-half bushel per year since 1953.

The third major income category for Montana producers is government transfer payments. The majority of transfer payments are associated with grain production. In the past, they have served the purpose of tempering the impacts of low commodity prices. A significant change in agricultural legislation occurred with the Federal Agricultural Improvement and Reform Act (FAIR Act), enacted in April of 1996. This represents a major change in how government transfer payments will be determined and the level of those payments. Under previous legislation, transfer payments were based on the difference between market prices and a pre-specified target price; as market prices declined, transfer payments increased. Under the FAIR Act, transfer payments for the next seven years are scheduled and do not depend on market prices, or pre-specified target prices. The stated intent is to move to a more market-oriented agriculture, and to phase out government transfer payments. The current schedule will gradually reduce the payment amount until the year 2002. However, for 1996, transfer payments to Montana's producers increased over the 1995 levels. This is due in part to the relatively high grain prices in 1995 and subsequent low levels of transfer payments in 1995. Transfer payments in 1996 increased by 27 percent over 1995 levels and accounted for about 11 percent of total cash receipts in agriculture. This proportion will decline over the next several years.

Outlook

Livestock prices rebounded dramatically in 1997. This may reflect a bottoming of the current cattle cycle. If so, we should see continued strength in cattle prices over the next few years. National production levels and international trade activities in the livestock/meats sector will have important impacts on the prices that Montana ranchers receive for their livestock.

Wheat prices have remained above average for the past few years. This is partly due to relatively low yields in wheat-producing regions in the United States and around the world. As these regions return to more normal production, wheat prices will likely exceed the $4 per bushel level. In addition, the planting flexibility associated with the FAIR Act may cause some shifting of production from wheat to more highly-valued crops in some parts of the nation. This will have a modest impact on wheat prices. Wheat stocks have not been replenished to any significant degree, so annual production of wheat will continue to have important impacts on wheat prices for the next few years until stocks are rebuilt.

Government transfer payments will decline over the next five years. Montana producers will be more dependent on the marketplace; they will have to replace the income lost from government payments with income from the marketplace. If this is not done, real land values will eventually decline.

Alan E. Baquet is a former professor of agricultural economics and economics at Montana State University, Bozeman. He is currently director of South Central Research and Extension in Nebraska.
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Author:Bacquet, Alan E.
Publication:Montana Business Quarterly
Date:Mar 22, 1998
Words:1054
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