By Carol Lea Spence
LOUISVILLE, Ky. (Dec. 4, 2014) — Though the forecast for 2014 crop receipts is down 2 percent, a 15 percent increase in beef, poultry, dairy and hog prices is expected to boost 2014 Kentucky agricultural cash receipts to $6 billion, up slightly from $5.7 billion in 2013. The outlook for 2015, however, is expected to drop back to the $5.7 billion range.
Overall, Kentucky is faring better than much of the rest of the nation when it comes to its farm economy. While U.S. farm cash receipts are expected to fall by 1 percent this year, University of Kentucky agricultural economist Will Snell predicts Kentucky’s receipts will increase by about 5 percent.
“These higher receipts, coupled with the last year of tobacco buyout payments and a relatively large percentage of the 2013 corn crop being sold this year, will enable Kentucky net cash income to remain relatively strong in 2014,” Snell said. “Our biggest concern is what is looming in 2015 when buyout payments have ended and a much lower priced grain crop is marketed.”
UK College of Agriculture, Food and Environment faculty Snell, Kenny Burdine, Todd Davis and Tim Woods, all from the Department of Agricultural Economics, Jeff Stringer, from the Department of Forestry, and Kentucky Farm Business Management Program coordinator Jerry Pierce shared their agricultural economic outlook for 2015 and an overview of 2014 during the Kentucky Farm Bureau Federation conference Dec. 4 in Louisville.
“Despite a lot of concern over current and projected crop prices, we partially attribute Kentucky’s agricultural economy being better than that of the U.S. to the diversity of agriculture we have in our state,” Snell said. “In the midst of a current depressed grain economy, compare Kentucky’s gross or net farm income to that of a grain state, like Illinois. They are really nervous looking into 2015.”
That is because significantly lower anticipated grain prices, coupled with modest changes in land rents, will challenge grain profitability in 2015.
“We are seeing lower prices because stocks of wheat, corn, soybeans and cotton are increasing both domestically and globally,” Davis said. “We’re likely to see less corn planted in the U.S. in 2015 due to farmers shifting to more profitable crops.”
Kentucky is more livestock dependent than the country as a whole. Throughout 2014, tight supplies, strong fed cattle prices and decreasing corn prices resulted in unprecedented feeder cattle price levels.
“Short supplies and decreased grain prices should support feeder cattle markets in 2015,” Burdine said. “I expect a record calf market in the spring of 2015 and likely the second highest fall market on record, second only to 2014.”
Hog prices, while showing extreme variability, were up more than 15 percent in 2014. These increased prices and lower feed costs resulted in higher profitability. This will possibly lead to 2 to 4 percent more pork on the market in 2015, which may push prices down by 10 to 15 percent for the year. On the plus side, lower prices will help U.S. pork compete in world markets, which could add about 4 percent to export levels.
Poultry continues to be the top agricultural enterprise in the state. In 2014 broiler production continued its upward trend, with production increasing by 3 percent over 2013. Declining feed costs will enhance profits in 2015, which will lead to a 2 to 4 percent increase in production. The increased production will drive prices down slightly, but the lower prices will keep the U.S. competitive in global markets.
The tobacco situation changed this year, driven by increasing world production, lower burley demand and a mixed quality crop. Snell expects 2014 U.S. burley production will be greater than anticipated use, which would lead to more critical grading and prices retreating from their high of $2.06 per pound in 2013.
“Excess world burley supplies and slumping demand will likely induce tobacco companies to reduce contract volumes in the U.S. in 2015,” Snell said. “Coupled with labor and infrastructure challenges, acres will likely fall, with the value of Kentucky tobacco production likely retreating below $400 million next year.”
The equine market continues to show recovery from the three-year lows of 2009 to 2011. Burdine said major sales in 2014 are comparable to a year ago, both in terms of value and numbers sold. He predicts that strength in major markets will likely continue to support sales and stud fees in 2015, while softer commodity prices will reduce the pressure to convert hay ground to row crops, which caused a decrease in supply over the past few years.
Direct markets and programs such Kentucky Proud, Farm-to-School, Restaurant Rewards and Kentucky Farm Bureau Certified Roadside Farm Market Program continue to drive demand and growth for produce in Kentucky. More than 50 percent of produce is sold through direct markets, while auction markets result in 10 to 15 percent of sales.
The forestry sector saw a 5 percent increase from 2013, with an estimated direct economic impact of $8.3 billion. Employment in the industry is up 2 percent over last year. All forestry sectors increased; pulp and paper producers and converters saw the biggest gains.
“Prices for all timber commodities were stable or increased in 2014. Prices for sawlogs for lumber production, our most important timber commodity, increased 24 percent on average for all species and grades. These prices are expected to continue into 2015, resulting in good opportunities for growers, loggers and processors,” Stringer said.
The export value of Kentucky’s wood products is estimated to reach more than $273 million in 2014, an increase of more than 30 percent from 2013.
Preliminary study results were released that indicated the economic importance of the entire agricultural cluster, which includes production, agricultural inputs and food processing, was $43 billion, using data from 2012, the most recent available. The final report will be made available before the end of the year.
A copy of the outlook publication including information on individual farm sectors can be found at http://www2.ca.uky.edu/cmspubsclass/files/Outlook2015.pdf.