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Huge farm crops will help; not guarantee Minnesota economic recovery

August 18, 2010 By Lee Egerstrom, Economic Development Fellow
Minnesota's farm prospects this year have generated great excitement among producers and ag economists, but there's less certainty about how far a boost in farm income will reach through the state's economy.

On the day former Minnesota Congressman Bob Bergland became U.S. Agriculture Secretary in 1977, he told Washington reporters about his farm background at Roseau, near the Canadian border. The secretary said he rarely made "an extra dollar" farming "that didn't come out of some other farmer's pocket."

That may well prove the case yet again. Minnesota's prospective gains this year will be coming at the expense of others. While it means temporary good fortune for Minnesota agriculture, it doesn't mean the global economy is on the mend and will carry all economic sectors forward in the months and years ahead.

Drought conditions are widespread in Russia, parts of Europe, Argentina, Western Australia, India and some areas of the American South. Excessive rains and flooding have done serious damage to corn and soybean crops in isolated Iowa and the eastern Corn Belt, and to cotton crops in Pakistan. Crop diseases are taking a toll on cereal grains in parts of the Middle East.

Here at home, Minnesota farmers are expecting the biggest harvests ever for their two major crops - corn and soybeans. Prices for that huge harvest were steadily rising during most of July as growing conditions deteriorated elsewhere in the world, although prices for most grains and oilseeds declined slightly at the start of this week.

Stack these market conditions up and it is certain Minnesota farmers will receive more compensation for their commodities, their work, talents and fortunate growing conditions this year. How much more can still change greatly as world traders assess global needs and likely market responses. 

That process is underway. The Minneapolis Grain Exchange noted that trading volume jumped 98 percent in July from the same month a year ago, to 170,679 contracts. "Stronger wheat market fundamentals have spurred trading interest from both the buy side and the sell side in our Hard Red Spring Wheat contract," explained exchange official Rita Maloney.

That's what made reports on the USDA harvest forecast in the Star Tribune and Pioneer Press helpful for people wanting to understand the greater Minnesota economy.

Mike Hughlett, writing in the Star Tribune, noted that a Minnesota State Colleges and Universities and University of Minnesota Extension Service survey found 2009 Minnesota median net farm income fell 63 percent to $33,417, which was the lowest since 2001. Now, with livestock prices improving and grain prices rising, the farm income outlook is much improved; but this is a rebound from a bad year, not a windfall for rural Minnesota.

Similarly, Tom Webb in the Pioneer Press noted that prospects are now good for farmers and the supply chain that does business with agriculture. But he quotes State Economist Tom Stinson as cautioning that improved farm economics won't "cure" the state's problems with the national economy.    

While that is so, even the amount of improvement in the farm economy is still a long way from the bank.

Commodity prices change by the minute. Farmers stagger their grain and oilseed sales during the year so it is impossible to predict what farm income may be in any given year based on one day's prices for various field crops or from livestock and dairy production.

But given the August harvest forecast for major crops, and commodity prices for crops traded on Friday, the day the forecast became known, Minnesota farmers were looking at a potential harvest that could exceed $11 billion in value. That included a corn crop approaching $5.3 billion in value, a soybean crop approaching $3.4 billion in value, and a hard red spring wheat crop of about $660 million.

That's for starters. There's another $1 billion to $2 billion growing in the fields with sugar beets and specialty crops that Minnesota farmers raise, including sweet corn, peas, apples, barley, oats, dry edible beans and hay crops.

Heading into this year, USDA's Economic Research Service had forecast net farm income of $63 billion for American farmers this year, an 11.8 percent recovery from 2009 and its weak farm commodity prices. That forecast assumed farm cash income would increase by 2 percent this year, with crop receipts continuing to fall and livestock receipts rebounding.

Worsening global crop conditions and strengthening trade around the world suggest crop receipts will greatly outperform the USDA forecast. But remembering Secretary Bergland's earlier comments, it will take time to determine how much of the crop farmers' gains will come out of the livestock producers' pockets from higher feed cost.

A roundup of commodity market commentaries at the beginning of the week show how closely linked the most remote farms in Minnesota are with the global market for food and agriculture products.

Daily commentaries from the Chicago Mercantile Exchange saw cattle prices for October delivery actually falling last week while hog prices were mostly steady. The Merc's morning hog market report on Monday, however, did note strong meat packer demand during the week that could lead to higher pig prices.

That same morning, the Country Hedging brokerage subsidiary of CHS Cooperatives in Inver Grove Heights issued a market notice that said the country of Jordan was offering to buy 100,000 tons of hard wheat. Further, said analyst Joel Talsma, Kazakhstan and the Ukraine would be watched this week to see if they restrict grain exports like Russia is doing to cope with its shrinking crops.

Other market influences to watch, he wrote, include China reducing corn available for export, suggesting its supplies are growing tight; and trading in Malaysian palm oil was off 12 ringgits overnight. The later means there may be competitive vegetables oils on the world market easing pressure on soybeans.

International events do point to 2010 being a better year for Minnesota farms and rural Minnesota communities. But it doesn't suggest a state, national or global economic recovery from the ground up. That is especially so should international trade be diverted from manufactured goods to bulk food commodities.

It is like Bergland told a New York magazine writer that first day as agriculture secretary: Some times, he said, farming at Roseau was like "seven months of winter and five months of tough sledding."

That sums up the current condition of the Minnesota economy as well.


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