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Agriculture forecast.

Historically, land prices have been crucial to understanding Montana's agricultural economy. Real estate accounts for about 70 percent of a typical farm investment, and its fluctuating value impacts farm expansion or investment decisions. Thus, land prices reflect farmers' income expectations. Figure 1 shows Montana land prices over time. From the early 1940s, land prices rose at about 5.8 percent per year, peaking in 1980. Low cattle prices, drought, and high debt levels plagued Montana agriculture during the early to mid-1980s--problems reflected in land prices, which declined by 65 percent over the period 1980-1989. Land prices have increased by 11 percent over the past three years and are now at 1962 levels.

Recent land prices indicate some optimism on the part of Montana farmers. But the link is complicated by a surge in non-agricultural out-of-state buyers in central and southeastern Montana ranching areas (Lewistown, Roundup) as well as the usual recreation locales (Bozeman, Kalispell). In 1992, pasture land increased in value more than cropland, though data doesn't identify what portion of the increase is due to non-agricultural buyers.

Machinery investment (including vehicles) also indicates farmer optimism. This indicator rose about 8 percent annually until 1977, then declined at an annual rate of 3.2 percent until 1988. Since then, machinery purchases have just about offset depreciation, which runs 5 to 6 percent yearly for farm equipment. Preliminary estimates for 1992 show Montana farmers increasing automobile more than other machinery purchases.

Farm debt increased by 4 percent annually until 1981, dropped 7.2 percent per year after that, and now stands at 47 percent of the 1981 peak. From its peak, Montana's aggregate farm debt has been reduced by $3 billion--mostly through reduced consumption and not replacing machinery. Debt to asset ratio peaked at 21 percent in 1984, and now is 12 percent. About 2 percent of Montana's farmers maintain high debt and continue to face financial difficulties.

As Figure 5 shows, Montana's total cash receipts have remained fairly stable since the early 1940s. Livestock receipts exceeded crop receipts during the past eight years. Government payments have contributed about 17 percent of total receipts recently, and nearly 30 percent of crop receipts. Political and environmental constraints could put these payments at risk.

Figure 6 shows that effective wheat prices have dropped dramatically, and now stand at about 50 percent of the 1940 price. Cattle prices are about equal to the 1940 price. Wheat yields have risen dramatically, to about two and a half times their 1940 levels. Beef yields increased a modest 20 percent over the same period. Thus, cattle revenues have stabilized by maintaining both price and yield levels. Wheat (and other small grain) revenues have been maintained by increasing yields enough to offset declining prices.

Outlook

Wheat prices haven't increased as rapidly as expected, but I believe they will strengthen in 1993, possibly as high as $4 per bushel. Cattle prices stayed higher than expected in 1992. Cow numbers increased 6 percent annually over the past three years, and based on replacement heifer retention, I expect cow numbers will increase by 10 percent in 1993. Because of a larger increase in cow numbers and lack of past price declines, future downward cattle price adjustments are expected to be more dramatic.

Myles Watts heads the Agricultural Economics and Economics Department at Montana State University, Bozeman, MT.
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Title Annotation:focus on major Montana industries
Author:Watts, Myles
Publication:Montana Business Quarterly
Article Type:Industry Overview
Date:Jun 22, 1993
Words:556
Previous Article:Recent trends and conditions in the natural resource industries.
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