Falling prices, drought hurt Analysts see continuing decline in U.S. exports

Farming

January 24, 1999|By Ted Shelsby | Ted Shelsby,Sun Staff

The combination of drought and the lowest grain prices in more than a decade made 1998 one of the worst years ever for Maryland grain farmers, and this year isn't expected to be much better.

The economic uncertainty in Asia is expected to continue to be a problem for agriculture, said Keith Collins, chief economist for the U.S. Department of Agriculture.

Asia accounts for 40 percent of U.S. farm exports and has a major impact on the prices farmers receive for their commodities, Collins said.

Exports reached a record high of $60 billion in 1996, coinciding with record-high prices for major crops.

Exports decline

Exports have fallen steadily since then. In 1998, they dropped to $54 billion. Collins said he expects the trend to continue this year as exports fall to $52 billion.

Commodity prices went along with the slide. The price of corn and soybeans, the two largest crops in the Maryland, dropped to a 12-year low. Hog prices are the lowest since the early 1940s.

Don't look for a lot of improvement in the Asian financial crisis this year, said Bruce L. Gardner, an agricultural economist with the University of Maryland, College Park and assistant secretary of agriculture during the Bush administration.

Gardner sees some improvement in the Asian economy this year, but he thinks a full recovery is still two years off.

This doesn't bode well for hog farmers. "The hog market is a disaster," said Robert Hutchison, who raises pigs as part of a 4,000-acre operation near Cordova in Talbot County.

As a result of excess supplies, worsened by diminished exports, the price of a hog in the benchmark Iowa-Southern Minnesota cash market recently dropped to the lowest price since 1941.

Farmers are losing as much as $50 on each hog sent to slaughter.

Hog prices will improve this year, but not by much, according to Kevin McNew, another economist with the University of Maryland.

He sees prices in the range of $35 to $36 a hundredweight by summer. This would still be more than 20 percent less than what hog farmers were receiving in October.

McNew said it would probably take a serious drought in the Midwest to significantly increase corn and soybean prices this year.

There are already large grain inventories in the United States and other parts of the world that will keep prices from moving sharply higher, he said.

Unless there are severe weather problems, the stockpiles will not be reduced enough to send corn prices above $3 a bushel or soybeans above $7 a bushel anytime soon.

Farmers across the country are expected to plant 80 million acres of corn this year, down from 80.8 million last year. With normal yields, McNew said, production will come in at about 9.3 billion bushels.

"Under this scenario, harvest-time prices in Maryland would probably be in the $2.30 to $2.50 a bushel [price] range."

Given the large stock of soybeans in the United States and other parts of the world, McNew said it is unlikely prices will move above $6.50 a bushel this spring, even in the event of a sizable crop problem in South America.

Assuming that U.S. wheat planting will fall by 5 million acres this year, McNew said harvest prices in Maryland could rise to $2.80 or $3 a bushel. One of the bright spots in agriculture last year was the dairy business. Dairy farmers benefited from low grain prices and record-high milk prices.

Those prices -- which have been 25 percent to 30 percent above the 1997 level -- are probably not sustainable, according to Myron Wilhide, president of the Maryland Dairy Industry Association.

Weather problems

Wilhide attributed the high prices to a shortage of milk because of weather problems in California at a time when there was increased demand for butterfat used in ice cream and other dairy products.

Milk prices are expected to fall in coming months, according to McNew.

Once again the dairy industry will be at the center of a dispute this year as Congress considers legislation that would allow Maryland and a number of other states to become members of an interstate dairy compact.

The compact is designed to halt the sharp decline of the Maryland dairy industry by boosting the farm price for drinking milk. The state has lost 25 percent of its dairy farms since 1991.

Maryland is one of 14 states that have passed legislation to join a compact if approved by Congress. The six New England states belong to a compact.

Industry officials anticipate a heated battle as opponents of the legislation -- primarily retailers -- argue that it will increase the price of milk at the supermarket.

Pub Date: 01/24/99

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