Policy Brief Vol. 5, No. 26:
July 05, 2002
Farm Bill and Drought Have Impact on Prices
It's always one of the U.S. Department of Agriculture's most important reports of the year. Make it even more so in 2002.
The annual estimate of acres planted to major crops was issued on the last business day of June. It hints at farmers' first reactions to the new farm bill. It also offers clues to price prospects for major commodities if weather conditions don't improve.
Corn acreage is up 4 percent this year, both nationally and in Nebraska. Soybean acreage is down 2 percent nationally and 1 percent in Nebraska. From the standpoint of government supports, the acreage shifts make sense because corn benefits more than soybeans from the farm bill.
Meanwhile, a higher safety net for sorghum failed to maintain – much less, boost – planted acreage. Nationally, sorghum acres are down 9 percent. But this pales in comparison to a 24 percent drop in Nebraska. The statewide total of 420,000 acres is the lowest since 1953.
If anything, the trend in recent years toward fewer sorghum acres in Nebraska seems to have accelerated. But the real test of sorghum's future may come in 2003. Dry growing conditions this year and an average 27 cents per bushel boost in county sorghum loan rates from 2001 to 2002-03 may encourage producers to give the crop another chance. By comparison, loan rates for corn are expected to average 10 cents per bushel higher over the same two years.
Winter wheat, which was planted well before any details of the farm bill were known, is being harvested on 5 percent fewer acres nationally this year. At 1.45 million acres, the Nebraska total is down an even larger 9 percent and the lowest since 1917. Drought-induced abandonment is a factor in the state's harvested total.
In recent days, crop prices have moved higher. And not just for crops with fewer planted or harvested acres. Corn, too, has been on the rise. Concern about reduced yields is the major market-maker at the moment.
Since 1998, farmers have become accustomed to using the government loan program to price commodities. With the possible exception of soybeans, that may be about to change. Loan rates are now below market prices being offered for corn, sorghum and wheat. In the absence of loan deficiency payments, producers can focus entirely on cash markets and/or forward-contracting opportunities.
When making marketing decisions, keep in mind that prices are affected greatly by stocks already in storage. Current stock levels for corn, sorghum and wheat are modest. Together with the drought, this sets the stage for less dependence on government. That was not the expectation when the farm bill was signed into law May 13.
07/05/02-RF/VM
Roy Frederick - Ph.D.
Agricultural Economics
Professor
(402) 472-6225
Vicki Miller Research Communications Coordinator (402) 472-3813
Department: Agricultural Economics
|
