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Will Kentucky farm receipts top $6 billion?

By wmadministrator

Despite seeing the greatest percentage decrease in farmland of any state in the country between 2007 and 2012, according to the U.S. Department of Agriculture, Kentucky’s agricultural outlook remains a favorable picture of growth, thanks in part to the ambitious rise of the livestock sector and sales of stored grain.

Poultry is Kentucky’s No. 1 crop, and No. 7 in the United States. Kentucky broilers generated $867 million in cash receipts in 2012.
Poultry is Kentucky’s No. 1 crop, and No. 7 in the United States. Kentucky broilers generated $867 million in cash receipts in 2012.

Official USDA figures for 2013 won’t be issued for another month or more, but the University of Kentucky Department of Agricultural Economics estimates state farm receipts might have hit $6 billion last year after having grown to a record $5.2 billion in 2012. Initial estimates for 2014 were for further receipts growth and another record cash harvest, but that optimism is cooling somewhat.

“Our December 2013 report projected strong livestock prices and lower crop prices for 2014. This will certainly be the case,” said Dr. William Snell, a UK agriculture economist. “However, livestock prices have been stronger than we anticipated and crop prices much lower in response to projected large crops nationally and increasing global supplies.

“Here in Kentucky, we will have increased grain acres, and I think decent yields will evolve (this year), but crop revenues will likely fall. Livestock prices are being supported by tight inventories and soaring exports.”

Beef prices, in fact, are at record highs.

Further commonwealth agricultural export growth is expected, according to Snell’s Economic and Policy Update from June 2014

Corn is the state’s No. 2 commodity. In 2012, farmers grew 104 million bushels, which earned $829 million.
Corn is the state’s No. 2 commodity. In 2012, farmers grew 104 million bushels, which earned $829 million.

“In recent years, the value of Kentucky ag exports has exceeded $2 billion, accounting for more than 40 percent of our ag cash receipts,” the report states. “In 2012 Kentucky ranked 20th overall in ag exports among U.S. states, but was the fourth most trade dependent state.”

Thoroughbred horses also are helping the state’s agricultural economy with that sector, experiencing surging prices (see story on page 34). Kentucky’s top crops are corn, soybeans, tobacco and wheat, in that order, but Snell noted that a large part of the state’s farm income comes from horse sales.

The state’s world-famous Thoroughbreds last topped Kentucky’s farm receipts list in 2006. Poultry has held the cash receipts title every year since 2007.

“All signs indicate the equine market continues to be relatively strong,” Snell said. “For crops in total, I thought our estimate for farm cash receipts for 2014 was on the high side when we put out that ($6 billion) number in December 2013 and, given softening of crop prices this summer, I still believe that is the case. Nevertheless, increased acres, good crop yields and a strong livestock market will keep Kentucky farm cash receipts relatively high once again in 2014 – but not at record levels as we projected.”

Kentucky farmers outperform national trends

On a national level, the USDA projects net farm income will fall in 2014. It is forecasted to be $95.8 billion in 2014, down from 2013’s forecast of $130.5 billion – historically high grain prices are declining as heavy 2014 plantings prime the market for increased supplies. USDA will issue official 2013 totals in about a month, and 2014 numbers in fall 2015.

KY Ag Cash ReceiptsIn Kentucky, Snell and his UK College of Agriculture, Food and Environment colleagues estimate in their Kentucky Agricultural Economic Outlook for 2014 that the broad livestock sector will sustain the commonwealth’s farm revenues, thanks to exceptionally strong poultry, equine and cattle markets.

“Nationally, agricultural cash receipts and net farm income are expected to fall (in 2014) in the midst of lower crop prices, which could lead to some softening of real estate values in some areas,” according to the report. “Kentucky’s agricultural economic outlook appears more optimistic, especially if the equine market remains firm (see story on page 34) and if a large carryover in grain sales will be figured in 2014 agricultural cash receipts. Kentucky’s beef, swine, poultry and dairy profitability will be enhanced with anticipated strong prices and lower feed costs.”

While livestock operations look good, Kentucky also evidently knows how to grow grain, and stored crop sales will tick up the revenue numbers.

“Even with much lower prices and a large percentage of the crop stored for sale in 2014, Kentucky grain cash receipts may still increase for the calendar year 2013, given exceptional yields that are considerably above national yields,” the report states.

Despite a decline in cigarette sales and regulatory issues, Kentucky will benefit from tight quality burley supplies and smokeless tobacco product growth, enabling the value of state tobacco production to remain near post-buyout highs this year. However, 2014 will see larger supplies of corn and soybeans, and prices are moving lower accordingly. High prices in recent years led to very large plantings that are boosting supplies.

Kentucky’s produce crop sales are expected to grow, thanks to additional market outlets and continued growing demand among consumers for local fruits and vegetables.

“Our greenhouse and forestry industries hopefully will continue to benefit from an improving general economy,” according to Snell’s report.

Canola and hemp hold promise also

Chad Lee, a UK College of Agriculture, Food and Environment professor and a corn, soybean and small grains production expert, pointed out that upstarts canola and hemp are making a lot of news in Kentucky, even if they are not big crops yet. Each is making a rebound into state agribusiness.

Hart AgStrong is spending $7.3 million to build a canola oilseed processing plant in Western Kentucky. The Trenton facility will employ up to 25 full-time workers. Canola oil is produced from the rapeseed plant, shown here.
Hart AgStrong is spending $7.3 million to build a canola oilseed processing plant in Western Kentucky. The Trenton facility will employ up to 25 full-time workers. Canola oil is produced from the rapeseed plant, shown here.

Championed by Agriculture Commissioner Jamie Comer as a new cash crop, hemp is getting a lot of news coverage and, legislation permitting, holds potential to positively impact future state crop revenues, Lee said. It is controversial, though.

A significant U.S. crop grown for its strong fiber and oil until the 1930s, hemp became notorious when its botanical twin marijuana was made illegal – both are varieties of the cannabis plant. Comer had to take federal officials to court this past spring to get a first shipment of Canadian seed released for supervised test plantings in various parts of the state.

Comer and other advocates argue that industrial hemp’s return in the United States is inevitable, and Kentucky has an opportunity to be among the first to re-establish it as an agribusiness.

While hemp historically was a commercially viable Kentucky crop, and Canada today has an established industry, opponents question whether it can be profitable in the commonwealth. Moreover, they argue that hemp’s legality will provide cover for marijuana’s return. U.S. public opinion about cannabis is softening quickly in recent years, though. Many states have decriminalized it, and Colorado and Washington last year made marijuana use legal for adults.

Canola, a cool-season oil-seed crop, on the other hand, is already making a golden splash.

“It would be looked at as an alternative to growing wheat and an option to rotate growing wheat in fields,” Lee said. “The seed is a valuable type seed.”

General farmland acreage is on the decrease in the state and the nation due to ongoing urbanization, he said, but the agribusiness is growing and doing very well in areas surrounding Owensboro, Hopkinsville and Bowling Green.

The fertile soil-rich southern and western sector of the state also happens to be where a new canola processing plant is opening, and farmers are taking a chance again on the relatively new crop, developed from the rapeseed plant whose oil has been a lamp fuel for millennia. Canadian scientists bred an edible form in the 1970s, and it was dubbed canola – for Canada oil – to avoid the negative English-language connotations of the original plant’s name.

“Our big crops are going to be corn, soybeans and wheat in terms of grain crops. With that rotation, lots of our producers want to diversify. That’s where grain crops like canola come in,” said Carrie Knott, a UKAg extension agronomist at the Department of Plant and Soil Sciences in Princeton, Ky. “It’s an insurance policy: If there are more diverse crops, hopefully they will hold prices better, so canola is creeping in. It has ebbed and flowed in the state since the 1980s. It’s a good row crop for Kentucky. We got up to about 20,000 acres of canola in the ’80s.”

Tobacco, the state’s No. 3 crop, brought in  $385 million in 2012.
Tobacco, the state’s No. 3 crop, brought in $385 million in 2012.

U.S. canola plantings remain most heavily concentrated in the upper Great Plains and can vary as much as 30 percent from year to year due to weather issues. Overall acreage, however, has grown very significantly the past two decades from 155,000 in 1991 to 1.75 million in 2014.

In Kentucky, farmers may finally be overcoming hesitancy to take on the winter crop again after weather-induced production problems wiped out entire crops during the its initial period of popularity. News of a new canola processing plant coming to the commonwealth is increasing optimism also.

Processor means more canola planting

In April, Hart AgStrong LLC announced plans to build a canola oilseed processing plant in Trenton – a $7.3 million investment that will create 25 full-time jobs. The Todd County plant situated in an area with some of the state’s richest row-crop soil is expected to be operational by early 2017. That will be a significant saving for Kentucky canola farmers who now must send their harvest by rail to the northern Great Plains, Canada or Georgia (the latter is Hart AgStrong’s other U.S. canola facility).

Transport can be unpredictable and costly, Knott said. An in-state processor will improve the financial equation significantly for canola, which is turned into animal feed as well as oil for human consumption.

“This new plant is doing food-grade product – pressing the seeds and doing canola oil that humans can consume,” Knott said. “They are using a press method that is better than an acid extraction. The byproducts can be used for other uses, including feeding livestock.”

She expects the state to see more canola acreage. Currently, Knott estimates Kentucky has less than 5,000 acres, although no one knows an exact figure.

“We might creep up over the next 10 years or so – maybe double or triple – it just depends on weather and if producers get bitten again,” Knott said, adding that canola has better genetics now to withstand weather fluctuations.

The crop, harvested in the spring, was initially developed and became popular in much colder regions where winter weather does not fluctuate as much as it does in Kentucky.

Chad Lee, professor in the University of Kentucky College of Agriculture, Food and Environment, stands in a Kentucky soybean field.
Chad Lee, professor in the University of Kentucky College of Agriculture, Food and Environment, stands in a Kentucky soybean field. (Kentucky Soybean Association photo)

Farmers here “have to plant it by September, which can be prohibitive if you are still trying to get your corn or soybeans out,” Knott said. “It’s going to be a learning curve for those that choose to grow canola.”

Most of the current acres are in the state’s southern tier. But for those doing it well, canola can be very profitable and work efficiently on a farm that already produces other row crops.

“For some established canola people, now that we have that processing facility it may be slightly more profitable than wheat,” Knott said.

W.F. Ware Co. in Trenton will be partnering with Hart AgStrong on the canola processing expansion. Vice President Barry Groves said he has seen some farmers raise canola very well, and some have simply had poor luck with it.

Groves said the new plant hopes to process $15 million worth of canola crop from Kentucky as well as Illinois, Indiana, Tennessee, Alabama and places such as Texas. Trenton is a good central location with convenient rail access, he said. The plant is already crushing canola seed until planned refinery and storing capabilities are completed in 2017. The oil now goes to Georgia at Hart AgStrong’s home base.

The new plant’s location and healthier production methods, he said, will help Kentucky farmers as well as canola growers in the Southeast.

Abby Laub is a special publications editor for The Lane Report. She can be reached at [email protected]