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Agriculture


Industry Outlook 1999 -- LIFE SCIENCES

Agriculture

Normally, Ron McCartney would be ecstatic about the bumper crop of corn he harvested last fall. But now, it's looking like a mixed blessing. That large crop, along with severely depressed corn prices, has forced him to rent expensive storage space in a silica sand mine 30 miles from his 1,700-acre farm in northeast Iowa. "I hate doing this," says McCartney. "They've taken advantage of the situation and raised rates."

He's not alone. The situation for most of the farm sector is dismal. The three major U.S. cash crops--corn, soybeans, and wheat--were down 27%, 13%, and 29%, respectively, through Dec. 21. Thousands of farmers are holding on to their crops, hoping to sell them at better prices later this year.

Welcome to free-market agriculture. Two years after the passage of the 1996 Farm Bill, which phases out federal subsidies for farm prices, American farmers are experiencing the downside of market-based prices. Half the problem is weak demand. Other than the dairy industry, which sells virtually all of its milk and butterfat domestically, every agricultural sector has been hurt by the crisis in Asia. The Agriculture Dept. estimates that farm exports dropped by 6%, to $54 billion, in 1998 and will fall this year to $50 billion.

The second part of the problem is increased supply. "Competitors have been producing good-to-record crops," explains economist Terry Francl of the American Farm Bureau Federation. For all the dire predictions about El Nino, big agricultural producers such as Brazil, Argentina, and Australia hauled in bumper crops of soybeans and wheat last year, as did the U.S. And with better use of technology and farming techniques, the rest of the world will likely continue to improve production.WHERE'S THE BEEF? Livestock producers fared even worse than grain farmers last year. While exports make up a smaller proportion of animal production, cattle and hog herds are still too large for the domestic market. Despite three years of downsizing the beef herd, cattle prices are off 20% since the beginning of 1998. Any improvement will likely be muted by the glut of hogs currently on the market, as consumers substitute cheaper pork for beef. With hog prices at 50-year lows, the industry is a basket case.

Weak demand, strong supply: The combo adds up to a poor outlook for most of the U.S. agricultural sector. While the $6 billion aid package passed by an election-year Congress was some help, U.S. farm incomes fell an estimated 3.6%, to $48 billion, in 1998. "The best thing farmers can hope for now is bad weather elsewhere," says Michael Singer, agricultural economist for the Federal Reserve Bank of Chicago.

The only other thing that would improve prices is some kind of significant shock to global grain supplies. Otherwise, farmers such as Ron McCartney could be selling their 1998 harvest into an even weaker market this year.By Andrew Osterland in ChicagoReturn to top

TABLE

Positives and Negatives

POSITIVES

-- Grain prices have already recovered a little from lows in early September

-- The federal government is distributing $6 billion in aid for farmers and accelerating subsidy payoutsNEGATIVES

-- World demand and exports were down last year and will likely drop further in 1999

-- The rest of the world is getting better at producing food, and that will hurt prices long-termReturn to top


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