Hoosier Farmers Optimistic for 2004

Happy clays could be here again as Indiana farm income prospects appear to be favorable in 2004. Higher incomes are expected to be led by higher corn, soybean and wheat prices. Even though costs of grain production will be up sharply, strong crop prices are expected to more than offset rising input

The fortunes will not be as positive for animals industries, however. The beef sector will continue to be impacted by BSE ("mad cow disease"), and large hog and milk production, in combination with higher feed prices, may prohibit positive returns.

Indiana farmers will need more debt capital to finance rising crop input costs. Nitrogen fertilizers will be up from 25 percent to 30 percent. Phosphate fertilizer is expected to rise by 10 percent, with potash up about 8 percent. The price of Roundup Ready soybean seed varieties are up around 8 percent. seed corn and farm chemical prices will be a mixed bag, with individual product price increases expected to be up from O percent to 5 percent. In addition the cost of renting farmland is expected to be up 3 percent to 5 percent.

Variable costs in a 50-50 rotation on average yield land are expected to be about $17 per acre for corn and about $7 per acre for soybeans.

Fortunately expected higher revenues will outpace rising costs, providing the opportunity for an additional $18 or more per acre of net returns relative to the Purdue forecast a year ago in January.

What about crop prices? Soybeans are stealing the headlines with U.S. stocks growing dangerously small as a result of the tiny 2003 U.S. crop and record usage this past fall. Futures price highs at $9 per bushel, or higher, still remain a possibility.

Prospects for the 2004 crop would suggest a crop of about 2.9 billion bushels, which would substantially overcome the current shortage. Harvest price prospects, are expected to be in the $5.50 to $6 per bushel range.

Corn price prospects have improved sharply in 2004 as well. Record-tight world stocks and the lower value of the U.S. dollar are expected to keep export business growing throughout the winter and spring, even in the shadow of higher corn prices. Anticipated ending stocks on Aug. 31, 2004, are expected to be near 900 million bushels, signaling potential growing concerns about supply shortness this spring and summer.

For 2004, corn production could be about 10.2 billion bushels with normal yields. But growing usage is expected to reach 10.5 billion bushels, providing even tighter 2004 supplies with harvest prices in the $2.30 to $2.65 range.

Corn may well be more bullish than soybeans in 2004, since there is no major Southern Hemisphere crop. Continued strong exports this winter, or weather concerns this coming spring and summer, could drive new crop corn to new highs. Generally the best new crop pricing opportunities are expected in the February-throughMay time period.

Winter wheat acreage is clown 3 percent, and concern remains for dry conditions in the west-central Plains, plus world wheat stocks are at record tight levels. However a return to more normal world crops in 2004 would help reduce the world tightness. Thus prices are expected to move lower into the spring and early summer, with Indiana harvest prices in the $3.25 to $3.50 range.

In the beef sector, consumer demand is not expected to change much, not even in light of the Dec. 23 announcement of BSE. However beef exports will be largely shut off for what we assume will be the first half of the year. This will result in retail beef prices' dropping about 10 percent to 12 percent.

Finished cattle prices dropped from about $93 prior to the announcement to the very low $70s, but recovered to the mid $70s currently. The yearly average may be in the higher $70s and could still be the second or third highest annual cattle price in U.S. history.

Calf prices averaged near $1 per pound in 2003, and will be lower this year due to lower feel cattle prices and higher feed costs. Expect calves to average in the very high $80s to mid $90s.

For hog producers, pork supplies are expected to be nearly unchanged in 2004. Prices are expected to average about $42, which is $2 higher than in 2003. Unfortunately costs are expected to rise by about $2.50 per live hundredweight. So the industry would have about a f 2 per live hundredweight loss for the year. Profitability is expected in the spring and summer, with losses in the first and the last quarters of the year.

USDA expects milk prices to average in a range of $11.95 to $12.75 per hundredweight (or $12.35 at the mean) in 2004. There remains a surplus of butter and cheese that will continue to depress prices. With high soybean meal, corn and energy prices, many dairies will continue to feel the cost-price squeeze. This will be the third year that prices have been in the $12 to $12.50 range, the lowest prices for milk since 1980.

Broiler production is expected to rise by 3 percent, with prices moving upward by 3 percent to 64 cents per pound.

Turkey production is expected to be unchanged, with prices also about 2 percent stronger to 63 cents for wholesale turkeys in Eastern U.S. markets.

Egg production is expected to be stable, with prices reaching 91 cents per dozen (New York). This would be an increase of 3 percent over last year.