BusinessWeek: January 11, 1993

Get Four
Free Issues

Subscribe to BW
Customer Service

 Industry Outlook: NATURAL RESOURCES

THE GOOD EARTH LIVES UP TO ITS NAME

For U.S. farmers, 1993 promises a cornucopia of goodies. Domestic markets should be strong and so should exports. Farm profits could even reach near-record levels. The only clouds hanging over an otherwise fair-weather forecast are uncertainties over trade agreements and the policies of the Clinton Administration.

Barring a thunderstorm over politics or trade, farmers' cash income in '93 could approach 1990's record of $61.3 billion, says the Agriculture Dept. Plentiful supplies of grains, meats, fruits, and vegetables will mean some price weakness, and overall U.S. food prices probably won't climb more than 4%. But farm incomes won't suffer much, because rising crop-support payments are projected to drive up government subsidies by 40%, to $12 billion. Farm debt is also way down, and lower interest rates mean interest will eat up just 17% of farmers' net cash income this year, vs. 23% in 1992.

On top of all that, exports will come close to matching the 1981 record of $43.8 billion, Agriculture economists predict. That's partly because a threatened agricultural war with Europe seems to have been averted. A breakthrough in General Agreement on Tariffs & Trade negotiations last November apparently settled the main issues in the dispute. And though French farmers still are fuming, U.S. analysts believe the agreements will hold.

SOYBEAN SURPLUS. The North American Free Trade Agreement promises a further boost. Mexico has become the third-largest U.S. agricultural export market: It buys huge quantities of grain, oilseed, and meat. The value of agricultural exports to Mexico, which have been growing at more than 20% per year, were projected to reach $4.1 billion this year even without NAFTA. And if the Senate ratifies NAFTA intact, says Alan Barkema, senior economist at the Federal Reserve Bank of Kansas City, south-of-the-border shipments of such crops as corn and wheat will soar.

U.S. farmers need big foreign markets because they have a rich bounty to sell. The record 9.3 billion bushel U.S. corn crop harvested last year was up 1.8 billion bushels from 1991 and could grow again in 1993, says the Agriculture Dept. This year's projected soybean crop is expected to be slightly above last year's record 2.2 billion bushels.

Production is busting out all over in meat supplies, too. Pork output is expected to climb 3% above 1992's record of 17.2 billion pounds, and pork exports should jump by 12%, to 460 million pounds. The nation's cattle herd, at 102 million head last January, could rise to 108 million by 1997, as U.S. farmers take advantage of lower domestic feed prices and import cheap Mexican and Canadian feeder cattle for slaughter in the U.S. Beef exports should climb by 10% this year, thanks in part to a reduction in Japanese import tariffs from 60% to 50%.

Still, there are areas of concern. Cotton production is expected to fall 8% this year, to 16.2 million bales, largely because planted acreage is declining after last year's bumper crop. And the shakeout among dairy farms will continue. The number of such farms, which has shrunk more than 30% in the past five years to fewer than 180,000, will slip again this year. And the nation's herd of 9.9 million milk cows, which shrank 2% in 1992, will get even smaller.

RED SCARE. On the trade front, the dispute with Europe could always reignite. And Russia and Eastern Europe, major markets for exports in recent years, are nearly broke. Russia recently defaulted on a $10.9 million interest payment on grain loans guaranteed by Washington, and Eastern European purchases last year were held down by tight finances there. This has exporters worried. "The principal determinant of U.S. grain flows to the former Soviet Union is the availability of U.S. government financing," frets Steven A. McCoy, president of the North American Export Grain Assn. Wheat exports to the former Soviet Union in 1993 may fall 25% from 1992 levels. And cash-strapped China is expected to cut its purchases by 37%.

The degree of prosperity down on the farm will depend heavily on how the Clinton Administration responds to all these challenges. Putting aside the availability of overseas loans, "farm programs are extremely vulnerable," warns Representative Charles W. Stenholm (D-Tex.). Their size and entitlement nature make them prime candidates for spending cuts, Stenholm adds. Atop the watch list: ethanol, a corn byproduct that was subsidized under President Bush and consumed 5% of the 1992 corn crop.

Given the uncertainties, "the cautious buying attitudes of North American farmers are expected to continue in '93," says Deere & Co. Chairman Hans W. Becherer. That means another slow year for farm suppliers: Sales of inorganic fertilizer are expected to fall about 4%, as are those of equipment made by such companies as Deere and Tenneco Inc.'s J.I. Case. Even in a bountiful year, it seems, many farmers will maintain their rock-ribbed conservatism.

David Greising in Chicago
  MARKET INFO
DJIA 0 0.00
S&P 500 0 0.00
Nasdaq 0 0.00

Portfolio Service Update

Stock Lookup

Enter name or ticker



 




Copyright 2000-2012 Bloomberg L.P.
Terms of Use | Privacy Notice