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Outlook for Montana agriculture.

General Financial Overview

Montana's agricultural sector had an exceptional year, producing an estimated $2.6 to $2.9 billion of sales in 2007, while generating an estimated $750-800 million in net farm income. Nationally, farm household income for 2007, which includes off-farm income, is projected to increase by 8 percent, substantially above the 2001-2006 average. The 2008 Montana agricultural outlook for both crops and livestock is promising with relatively strong prices. However, a tight labor market exists for agricultural workers in Montana, and prices for energy-based inputs, such as fuel and fertilizer, are likely to remain relatively high.

Grain/Wheat Outlook

World and U.S. average grain prices increased by over 35 percent the past year (Vocke and Allen, 2007). Better planting conditions and more moderate weather patterns during the summer contributed to a slight increase in world wheat production. World wheat production increased by 1.6 percent, while U.S. wheat production increased by over 14 percent from 2006 to 2007 (Table 1). Montana's shares of the world and U.S. wheat markets have remained relatively constant at around 0.7 percent (world) and 7 percent (U.S.). The futures market for wheat suggests that wheat prices will be strong in 2008.

Montana wheat production fell by about 2 percent from 153.1 million bushels in 2006 to 149.8 million bushels in 2007 (National Agricultural Statistics Service for Montana, 2007). Forecasters were optimistic about the Montana wheat crop in early July, with the spring grain progress being well ahead of 2006. However, a hot and dry July and August stressed the winter and spring wheat crops. More acres were planted to winter wheat in 2006/2007; however, winter wheat production was about the same as the year before. Spring wheat production declined by 13 percent from 2006 because of fewer planted acres and a 3 bushel per acre decline in average yield. Other grain crops (durum, barley and oats) realized substantial increases in production and stronger prices.

The major factors likely to affect the 2008 wheat markets include low carry-over stocks, production problems faced by major exporters, high export demand, winter and spring wheat plantings, and bio-fuels production. World wheat stocks are projected to be about 110 million tons, their lowest level in the past 30 years. Delayed planting and hot summer weather in Canada, wet weather at harvest time in the EU and continuing droughts in Australia, Ukraine, and Russia have put upward pressure on prices. Wheat exports are expected to rise because of less foreign competition and a weak U.S. dollar (Collins, 2007). Substantially higher wheat futures market prices will likely pull more acreage into wheat production in 2008. In fact, the U.S. Department of Agriculture is forecasting an increase of 5 to 7 percent in total U.S. wheat acreage (Collins, 2007). In addition, plantings have increased in the European Union, which will likely cause substantially downward pressure on wheat prices.

The other major factor affecting most field crop and livestock markets is the demand for corn for ethanol production. Market forecasters suggest that corn acreage will actually fall in 2008 as prices and returns for competing crops, such as wheat, have improved relative to corn in the past few months (Collins, 2007). The increased demand for corn for producing ethanol has increased the price of corn from $2 per bushel in 2005 to just under $4 per bushel in the fall of 2007. While ethanol production is unlikely to occur in Montana, other bio-fuels may be produced in the state utilizing oil seed crops, such as canola, safflower, camelina or others. Higher corn prices have increased feed prices for cattle, putting downward pressure on stocker and feeder cattle markets.

Cattle Outlook

U.S. commercial beef production has been relatively stable since 2005 (Table 2). Beef prices in 2007 have been influenced by higher feed grain prices, deteriorating pasture conditions, import and export demand, and domestic consumption. Higher feed grain prices have been driven by the sharp increase in the price of corn, which is expected to continue through 2008. Once again, hot, dry weather in parts of Montana and the United States has contributed to lower quality pasture conditions.

U.S. cattle imports have increased by nearly 11 percent over the same period last year, primarily through increased imports from Canada (Collins, 2007). Increase feed costs in Canada have prompted some Canadian livestock operations to export feeder cattle, rather than feed them domestically. The new U.S. Minimum Risk Region Policy, which allows age-verified Canadian cattle over 30 months of age born after March 1, 1999 to cross the border into the United States, is likely to further increase the number of cattle imported from Canada. Some increase in U.S. imports of Canadian feeder cattle may be offset by reduced imports of Canadian-fed beef because of high feed costs in Canada, a strong Canadian dollar, and labor concerns in the meat packing industry in Western Canada (Haley, 2007). These additional Canadian imports are likely to be offset by fewer cattle imported from Uruguay.

In contrast, beef and cattle imports from Mexico have declined as producers have kept their cattle on grass somewhat longer to utilize good grazing conditions in Mexico. Mexican producers are expected to take advantage of better grazing conditions to increase their herd size and decrease the exportation of cattle to the U.S. in 2008 (Haley, 2007).

Prior to the 2003 discovery of BSE cattle in the United States, the United States typically exported about 10 percent of its total beef production. In 2007, beef exports are expected to top 1.9 billion pounds, but this is only about 75 percent of 2003 total beef exports (Collins, 2007). Increased exports to Canada and Japan have offset declines in exports to Mexico and the suspension of beef trade with South Korea, a market that will not open until new import protocols are negotiated.

Growth in the U.S. beef consumption is predicted to be slow over the next few years as the U.S. economy's growth rate slows and, as a result, consumers will watch their food budgets more carefully. In addition, beef is expected to face continued competition from pork and chicken. Pork and chicken supplies are expected to increase by between 2 and 3 percent next year (Hurt, 2007).

Montana's beef production declined by about 4 percent from 2005 to 2006, with Montana's share of the U.S. beef market remaining around 2.0 to 2.5 percent (Table 2). Futures prices for the cattle market suggest that feeder and fat cattle prices will be strong in 2008 with prices somewhat higher than the fall of 2007. Continuing drought conditions in parts of the United States (and Montana) have not allowed cattle herds to be rebuilt, hence prices have remained strong. Montana cow-calf producers are likely to realize somewhat higher prices in the fall of 2008.

Agricultural Workforce

In July 2007, 1.2 million farm workers in the United States earned an average wage of just over $10 per hour (Collins, 2007). Agricultural producers are concerned about the current and likely future shortages of farm workers because of the high percentage of farm workers who lack legal authorization to work in the country (Collins, 2007). The Department of Labor and Industry reports than in 2006 Montana agricultural producers hired over 2,500 workers and paid them about $13.40 per hour. Given Montana's low unemployment rate, current shortages of agricultural workers are likely to persist in the state.

2007 Farm Bill

While the structure of the 2007 Farm Bill still has not been determined, many of the existing farm programs are expected to continue through 2013, although it appears that a new optional Average Crop Revenue program may become available for producers of program crops, such as wheat, barley, and oats. Stay tuned!

References

--Bureau of Economic Analysis, 2000-2006. State Occupational Employment and Wage Statistics, United States Department of Labor.

--Collins, K. (2007). Statement before the House of Representatives Committee on Agriculture, October 18, 2007.

--Haley, M. M. (2007). Livestock, Dairy, and Poultry Outlook, Economic Research Service, United States Department of Agriculture, LDP M-161, November 20, 2007.

--Hurt, C. (2007). Weekly Outlook, University of Illinois Extension, October 22, 2007.

--National Agricultural Statistics Service, Montana, 2007

--Vocke, G. and Allen, E. (2007). Wheat Outlook, Economic Reporting Service, United States Department of Agriculture, WHS-07i, November 14, 2007.

--WASDE (2007). World Agricultural Supply and Demand Estimates, U.S.D.A., November 9, 2007.

George Haynes is a professor in the Department of Agricultural Economics and Economics at Montana State University-Bozeman.
Table 1
World, U.S., and Montana Wheat Production

Geographic Area 2005 2006 2007

 (millions of bushels)

World 22,741.4 21,811.4 22,167.5
United States 2,104.7 1,812.2 2,066.8
U.S. share of world market,
 percent 9.3 8.3 9.3
Montana 192.5 153.1 149.8
Montana share of world
 market, percent 0.8 0.7 0.7
Montana share of U.S.
 market, percent 9.1 8.4 7.2
Prices of all wheat,
 $/bushel (10/2007) 3.63 4.54 6.23

Source: World Agricultural Supply and Demand Estimates (WASDE-440,
11/9/2007) and National Agricultural Statistics Service, Montana.

Table 2
U.S. and Montana Beef Production

Geographic Area (1,000 tons--carcass weight equivalent)

United States 20,724.2 21,051.2 na
Montana share of world market, 477.9 459.3 na
percent 2.3 2.2 na
Prices received, calves,
 $/hundred weight. 138.0 131.0 126.0

Source: National Agricultural Statistics Services, Montana.

Table 3
Montana Agricultural Employment and Wage
Statistics, 2000-2006

Category 2000 2002 2004 2006

Employment 1,950 2,160 2,480 2,560
Mean wages per hour $12.42 $13.69 $13.06 $13.43
Mean annual salary $25,830 $28,460 $27,170 $27,930

Source: Bureau of Economic Analysis, United States Department of
Labor, State Occupational Employment and Wage Estimates, 2000,
2002, 2004, and 2006.
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Title Annotation:billion of sales in 2007
Comment:Outlook for Montana agriculture.(billion of sales in 2007)
Author:Haynes, George
Publication:Montana Business Quarterly
Geographic Code:1U8MT
Date:Mar 22, 2008
Words:1667
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