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FAPRI analysts concerned about cotton projections

U.S. cotton producers could plant 13.4 million acres in 2007 or 12.2 percent less than in 2006, according to the 2007 agricultural economic baseline prepared by the Food and Agricultural Policy Research Institute.

The 13.4 million is 200,000 acres higher than the annual planting intentions survey released by the National Cotton Council last month. But FAPRI officials say the acreage and price forecasts generated by its economic models may have been overtaken by events.

“I’m worried about sustaining cotton prices as high as we have them (51.8 cents per pound for 2007-08),” says Pat Westhoff, the analyst who oversees the preparation of the baseline by the FAPRI centers at the University of Missouri-Columbia and Iowa State University, Ames.

The baseline forecasts cotton prices will rise to 54.4 cents per pound in 2008-09 and climb by 400 to 500 points per year to 59.3 cents per pound by the 2016-17 marketing year.

“Our cotton numbers were done in January when analysts thought cotton futures would rise in response to reports of acreage shifts in the Mid-South and Southeast,” said Westhoff. “It’s a bad situation when you lose 1.5 million acres of cotton, and it has almost no impact.”

Although cotton plantings could drop by 12 percent or more, soybeans will feel the rise in corn the most, falling to 70.5 million acres from 75.5 million acres in 2006. Wheat area increases to 60.1 million acres in 2007 but drops in following years to 57 million by 2016.

The baseline, prepared annually for Congress, is a collaborative effort of several institutions. Texas A&M, Texas Tech, the University of Arkansas and Arizona State also contribute.

FAPRI analysts say the current outlook depends on the price of corn not becoming too high, removing profits from ethanol plants. Baseline projections show ethanol production remains profitable, but increasing production and falling petroleum prices result in lower ethanol prices.

The baseline projects high crop prices will increase net income for grain farmers; however, higher feed costs cut profits of livestock feeders.

Overall, net farm income dropped $26 billion dollars in 2006 from a record high of $85 billion in 2004, with higher input costs largely responsible. Net farm income could rise $7 billion in 2007 to $66 billion and could remain above $60 billion in later years.

Cash receipts for cattle and calves reached a record $50.7 billion in 2006, but are expected to decline to $47.9 billion by 2010.

“As more expensive corn increased the cost of feeding cattle, feedlots bid down feeder cattle prices,” said Scott Brown, MU FAPRI livestock analyst. “This trend continues through the baseline, as feed costs remain high.”

Poultry producers reacted quickly to higher feed costs, reducing production in the third quarter of 2006. “Slowing growth in poultry is a rarity,” Brown said. “Broiler production is expected to grow only 1.6 percent annually through the baseline, compared with 3 percent annual growth for the previous 10 years.

Three years of profits for hog producers will end in 2007, according to the baseline. The price of producing pork is expected to go up 6 cents a pound, or 16 percent.

Food cost increases remain moderate in spite of higher grain prices. Annual growth in the food Consumer Price Index will average near 2 percent long term, near the general inflation rate, Brown said.

While grain prices play a part in food cost increases, 80 percent of consumer food costs come from other factors, including labor, fuel and packaging.

Fruit and vegetable costs spiked in 2006 and are expected to continue high, given weather-related losses.

Cost of food eaten away from home outpaced home meals in 2005. This trend is expected to continue.

Federal spending for farm programs is lowered by higher grain prices. Direct payments, counter-cyclical payments and marketing loans peaked at $16 billion in the 2005 crop year. Those same payments total $7.7 billion for the current marketing year. Payments are expected to drop to $6.7 billion by the end of the baseline in 2016, with direct payments accounting for $5.3 billion.

The baseline, which will be used to analyze the 2007 farm bill, has been given to the Senate and House agricultural committees and USDA.


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