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Texas Agriculture Archive

December 2, 2005

Outlook `06

USDA official says things are good; farmers beg to differ...

Belt tightening in the next farm bill is almost a certainty, with the nation's ever-expanding budget deficit, warned a federal farm official.
Floyd Gaibler, the U.S. Department of Agriculture's deputy under-secretary for farm and foreign agricultural services, said every part of the federal government is being squeezed.

"We're going to have a shrinking pie. All spending is going to be closely scrutinized," Gaibler recently said in an ag forum in Tipton, Ind."We're also going to have more people who want a piece of that pie because there are more players in the process," he added, noting fruit and vegetable growers, in particular, now are seeking the same support as corn and soybean farmers.

Gaibler helps direct the programs administered by the USDA's Farm Service Agency, Commodity Credit Corp., Risk Management Agency, Federal Crop Insurance Corp. and Foreign Agricultural Service.

Gaibler pointed out that when the last farm bill was drafted in 2002, the federal government had a budget surplus. Today, however, the situation is much different, with expenses from the war in Iraq and relief efforts to help victims of Hurricane Katrina and victims of other disasters this season.

"Clearly, one of the things that will be affecting the farm bill is the economic condition of farming itself," he said.

In Gaibler's estimation, the farm industry is "extremely healthy," enjoying record net farm income and record agricultural exports two of the past three years. Although he assessed the whole industry as being financially fit, producers attending USDA's farm bill forums across the nation are very concerned about the farm economy. Higher fuel and input costs are expected in 2006, putting even more pressure on agriculture producers. On Nov. 10, USDA released its 2006 forecast for a number of commodities as follows:

Corn

USDA increased its U.S. 2005-2006 ending stocks estimate from 2.219 to 2.318 billion bushels Nov. 10, dampening enthusiasm for higher corn prices anytime soon. According to the report, production is expected to total 11.032 billion bushels with 10.835 billion bushels of total use. This puts the ending stocks-to-use ratio at 21 percent, the highest in 13 years. On the world scene, USDA expects the 2005-2006 ending stocks to drop from 126 to 114 million tons, or 17 percent of total use. In 2005-2006, exports are expected to increase 10 percent, but so far, they are down 1 percent, the report stated.

Soybeans

Also on Nov. 10, USDA increased its 2005-2006 U.S. ending stocks estimate from 260 to 350 million bushels for soybeans. Production was pegged at 3.043 billion bushels with total use of 2.953 billion bushels. The resulting ending stocks-to-use ratio is 12 percent, the most in seven years. Worldwide, the USDA estimated 2005-2006 ending stocks at 47 million tons or 22 percent of annual use, up from 42 million tons in 2004-2005. Brazil and Argentina harvested 3.31 billion bushels in 2004-2005 and are expected to increase production 10 percent in 2005-2006. In 2005-2006, the USDA is expecting exports to fall 3 percent, but they have far exceeded that amount. Soybean exports are currently down 24 percent.

Wheat

The same date, USDA's estimate of 2005-2006 U.S. ending stocks remained unchanged at 530 million bushels, the lowest in three years.

Production for the crop year 2006 is expected to total 2.098 billion bushels with total use of 2.188 billion bushels. The resulting ending stocks-to-use ratio is 24 percent, still plentiful. Worldwide, USDA expects 2005-2006 ending stocks to drop from 149 to 140 million tons, or 22 percent of annual use. 611 million tons of world production is expected to fall short of 620 million tons of total use. The USDA report indicates anticipated 2005-2006 exports to be down 6 percent. As of Nov. 10, they were down 11 percent. Some analysts predict a bleak future for wheat because it is widely grown around the world. Farm productivity continues to rise, but wheat consumption has leveled off. On Nov. 13, USDA rated 56 percent of the winter wheat crop "good to excellent," which is down from 78 percent a year ago.

Cotton

USDA's 2005-2006 estimate of U.S. ending stocks, released Nov. 10, increased from 6.40 to 6.50 million bales. Projected production in the new year is 23.16 million bales with a total use of 22.20 million bales, resulting in ending stocks-to-use ratio of 29 percent, the most in four years. Globally, USDA anticipates 2005-2006 production to near 112 million bales, with usage pegged at 114 million bales. The 2005-2006 world ending stocks estimate is 51 million bales, a reduction of 50 million bales from the previous year.

Overall, increased world production has put pressure on cotton prices, causing them to fall. In September, domestic mill use dropped from a yearly level of 6.00 to 5.73 million bales. In 2005-2006, USDA hopes to see exports increase 12 percent. In mid-November, they were up 75 percent, with 73 percent of the U.S. cotton crop harvested. However, farmers worry that the elimination of the Step 2 incentive for cotton, in response to a World Trade Organization (WTO) ruling, will hurt future export opportunities.

Rice

USDA's Economic Research Service, on Oct. 13, pegged U.S. ending stocks of all rice for 2005/06 at 30.8 million cwt, down 9 percent from the September 2005 forecast and 18 percent below a year earlier. The 2005/2006 U.S. season-average farm price (SAFP) is projected at $7.45-$7.75 per cwt, up 20 cents on both the high and low end from last September's forecast. The upward revision is based on tighter supplies. Global rice production for 2005/2006 is projected at 404.7 million tons (milled basis), down 0.9 million from last September's forecast but almost 1 percent larger than a year earlier. Production forecasts were lowered for China, Brazil, the United States, and Vietnam; but raised for India, Cuba, Madagascar, and Egypt.

Cattle

U.S. beef production is projected to increase 4 percent in 2006. On Nov. 10, USDA increased its estimate of the 2005 average steer price from 85.46 to 85.96 cents and the 2006 average estimate from 79.5 to 81.0 cents. Those estimates are vulnerable to changes in trade policies. USDA's Nov.1 cattle on-feed inventory was 11.475 million head, up 1.2 percent from last year. October placements were up 3.5 percent and marketings were down 3.3 percent from a year ago. So far in 2005, U.S. beef production is down .2 percent from a year ago.

During a recent address to the Texas Cattle Feeders Association, Randy Blach, executive vice president of Cattle-Fax, said cattle prices should remain strong in 2006, but perhaps not as high as 2005. He pegged feeder cattle price averages at $105 per cwt in 2006 and forecast fed cattle prices to average about $84 per cwt, $2.50 less than the 2005 average. Bach reported increased herd expansion of about 1 million head, with beef cows number 750,000 at the start of 2006.

Resumption of trade should result in an increase of net beef supplies by 200 million pounds, Blach said.

He further noted that total meat supplies will reach a record high in 2006, with pork and poultry production increasing from 2 percent to 3 percent. He said the fed cattle market posed challenges in the year ahead, but suggested that cattle feeders who watch the bottom line and are willing to take advantage of new opportunities can succeed.