DATE: 2/16/01 CONTACT: Dr. Hal Harris, (864) 656-5772; hharris@clemson.edu Dr. Charles Curtis, (864) 656-5781; ccurtis@clemson.edu WRITER: Tom Lollis, (803) 284-3343; tlollis@clemson.edu Government payments are key to higher farm income in 2001 NORTH MYRTLE BEACH - South Carolina farm income improved last year, thanks to government payments, rising about 8 percent above the depressed levels of 1998 and 1999. Subsidies and disaster payments will play a big role again in 2001, but farm income is expected to be down a bit, according to Hal Harris, Clemson Extension agricultural economist. When the final tally is in, total cash receipts for 2000 should top the $1.6 billion mark. That's better than the approximately $1.5 billion mark of 1998 and 1999, but less than the $1.7 billion in state farm income for 1997. Government payments to farmers were significantly higher in 2000, becoming a major source of income. Higher production of cotton and soybeans, better times for beef producers and continued growth in the nursery and greenhouse sector also contributed to improved farm income. "At the national level government payments accounted for a whopping 70 percent of net farm income," said Harris during the 18th Agricultural Outlook Conference, held this year at the S.C. Ag Expo at North Myrtle Beach. "Historically that percentage has been around 20 percent. It's a scary situation." Government payments to the state's farmers reached $150 million in 2000, about $23 million more than in 1999. That total was about $62 million in 1998. He noted that for the farms participating in Clemson University's four Farm Management Associations, mainly large row crop farms, government payments were 180 percent of net income last year. "That means that a farm with a profit of $50,000 would have received government payments of $90,000," he said. "The operation would have lost $40,000 without government subsidies." Harris said the U.S. Department of Agriculture (USDA) is calling for slightly higher prices for feed grains, cotton and oilseeds in 2001. With normal weather, crop receipts should be higher in 2001. However, if major program crop prices remain below the marketing loan rate, those price increases will be offset dollar for dollar with lower Loan Deficiency Payments (LDPs). He expects the livestock sector to remain strong with the help of low feed prices and sees a possible improvement in milk prices in 2001. Despite some bright spots, he said the USDA forecast is for a decline in net farm income of about 10 percent this year. "The forecast is for $41.3 billion, which is $4.1 billion less than 2000 and about $4 billion below the 1990-2000 average annual net. "This is based on the assumption that government payments will be reduced by $8 billion," said Harris. Of that, $2 billion is in lower LDPs and nearly $1 billion is in lower payments under the 1996 Agricultural Market Transition Act (AMTA). "The biggest question mark on the bottom line is emergency assistance, which will require special legislation," said Harris. "This figure was nearly $9 billion in 2000. What it will be this year is anybody's guess." Livestock and livestock products accounted for much of the growth in income in 2000. Broilers accounted for $350 million in cash receipts. Turkeys were second with $140 million, and cattle finished third with $115 million. Greenhouse, nursery and floriculture enterprises produced $220 million in receipts, well ahead of traditional field crops such as tobacco ($130 million), cotton ($114 million for lint and cottonseed), soybeans ($70 million), corn and wheat ($23 million each). Peaches, at $29 million, topped the fruit and nut sector and fresh tomatoes, valued at $20 million, led all vegetables. Agricultural economists from Clemson University, N.C. State University and the University of Georgia provided a detailed outlook on cotton, tobacco, wheat, feedgrains, soybeans and cattle. COTTON: "I think it will be a tough year for cotton," said Charles Curtis, Clemson Extension agricultural economist. He expects a large U.S. crop for 2001, in the 19-20 million-bale range. As much as 35 percent of the crop could be carried over to next year. S.C. farmers are expected to plant as much as 360,000 acres of cotton this year. He said cotton prices historically peak in March, April and May and growers may be able to obtain a price around 60 cents a pound or better in March. He suggested covering some production with put options to establish a price floor, leaving open the potential to gain on pricing changes later. "If supplies grow as much as average yield would project, we could expect significantly lower prices as we move into harvest," said Curtis. "If so, producers would be able to capture LDPs in the 15 to 25-cent range. Added to earlier wise marketing, this could net producers a more comfortable margin in 2001." SOYBEANS: A seasonal average price of $4.80 a bushel for 2001 soybeans was projected by Mark Piggott of N.C. State. He saw no incentive to forward contract new crop soybeans since current bids of around $4.41 are below the market loan rate. He said the trend for supplies exceeding demand has been steady since 1990. He said growers should be on the lookout for concern over potential production shortfalls in South America. That could spark a brief price rally this spring. WHEAT: "The wheat market has been in a serious terminal condition the last three years," said George Shumaker, Extension agricultural economist with the University of Georgia. "We've probably reached the point, however, where the market can improve." He said U.S. growers would probably plant less than 59 million acres of wheat this year, about 3 million fewer than in 2000. Carryover stocks could fall by more than 250 million bushels, meaning a reduction in total wheat supply. Shumaker said the national average cash price for wheat last year was around $2.65 a bushel. He sees the potential for prices to rise to near $2.90 or better in July and stay there. CORN: He projects 2001 corn crop cash prices to be near $2.40 a bushel, an improvement over the seasonal average price of $1.85 in 2000. Planted acreage will be down 1.8 million acres from last year to about 77.8 million. Production would drop from 9.97 billion bushels to about 9.38 billion if average yields of just under 132 bushels an acre hold steady. Shumaker said domestic use of corn could get a boost if fuel prices remain high and more ethanol production is called for. CATTLE: "There should be money in the cattle market for the next two or three years," said Jim Rathwell, Clemson Extension agricultural economist. He said record beef production levels will be down for the first time in four years. The cycle of herd population peaks and valleys has hit bottom. "Cattle producers have decided to rebuild the herd," said Rathwell. That decision will not be felt in the marketplace for another three or four years, however. The supply of beef in the marketplace will be down a bit for 2001. He said fed cattle prices could hit the mid to high $70s for most of 2001, a very positive sign for producers. Feeder cattle and calf price levels should remain strong over the winter and through the spring. TOBACCO: After three years of massive quota reductions, at least 17 percent a year, the basic quota for flue-cured tobacco was increased 1 percent by the USDA to 548.9 million pounds. For South Carolina tobacco producers, the basic quota stands at 68.5 million pounds for 2001. Manufacturers of tobacco products increased buying intentions by 11 million pounds for 2001 to 297 million pounds, according to Russ Sutton, Clemson Extension agricultural economist. Still, profits could be down 8-15 percent this year. Two pricing systems will be in effect side-by-side in 2001 the traditional quota system and contracting. A significant proportion of flue-cured production could be under contract within the next two or three years. END