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Outlook for agriculture could be affected by drought, Chinese ag policies

Long row to hoe

Prices for major farm commodities have been depressed for the past couple of years, and chances are slim of things getting any better in a year where a major drought is predicted.

“I see harder times than I’ve seen in my lifetime in areas of Mississippi that are more heavily dependent on agriculture,” said David Waide, president of the Mississippi Farm Bureau. “There are not other job opportunities there for people because agriculture is what creates economic opportunity in those areas. As long as agriculture is depressed, we will see the whole area depressed because of the huge impact of agriculture. I think it will have ripple effect to the economy in whole U.S. if we don’t see a turnaround soon.”

Farmers in Mississippi are very concerned about lack of rainfall. There isn’t enough moisture to germinate seeds in some areas of the state, and many farmers don’t have irrigation to compensate. The flip side is that a severe drought could result in increased commodity prices. Major commodities have been trading at the lowest levels seen since the 1970s.

“If we see the severe drought they are predicting, we will see commodity prices increase,” Waide said. “But what good does it do to have a high price if you don’t have a crop to sell?”

Chris Sparkman, deputy commissioner for the Mississippi Department of Agriculture and Commerce, agreed there are big concerns about agriculture this year.

“In the Delta whole communities revolve around agriculture,” Sparkman said. “Economic turnover from agriculture affects everything from insurance sales to church collections. The whole community suffers. If a farmer can’t make money, he pays his loan first and then has no money left for spreading around in the economy.”

Dr. John Lee Jr., chair of the Department of Agricultural Economics at Mississippi State University, said there are some uncertainties that could turn the market around. He lumps them under two things: weather and China.

“We’ve had four years of good weather worldwide, which is an unusual phenomenon,” Lee said. “That has created a large surplus. Back in the ‘70s and ‘80s, we had very large stocks, much greater than now, but they didn’t have the same effect on price because previously the government had storage programs. Those crops were taken off the market and stored. Now the government is not as much in the storage business.”

While stocks are high, a major disaster such as a drought or flood could reduce production enough to improve prices. One of those weather threats is drought in the U.S. Lee said that could significantly affect cotton, corn and perhaps wheat prices. But it probably wouldn’t help with soybeans because there are such large stockpiles of that commodity.

Lee said the other uncertainty is China. China is rethinking a lot of its commodity policies, partly for internal budget reasons, but also because they are trying to become a member of the WTO (World Trade Organization).

“And in order to do that, there are certain disciplines they would have to live by which would reduce some of the subsidization they put on some of their commodities,” Lee said.

So, while the mainline agricultural forecast is for another year of depressed prices, changes in Chinese agricultural policies and/or a weather disaster could give agriculture a significant boost.

Lee said most experts agree that a longer term forecast is for continued pressure on agricultural prices for the next 10 years.

“There is simply more capacity to produce in the world than there is likely growth in demand,” Lee said. “Even though world income is expected to rise, most of the people of the world who are food short are poor. To some extent growth in demand for our commodities is going to depend on how well Southern Hemisphere countries can improve the incomes of the people so they can buy food. The likelihood in the next five years is that demand won’t grow as fast as our production.”

Improvements in agricultural prices, baring major weather or policy shocks, are likely to be slow. Most long-term projections show that countries affected by the Asian economic crisis will slowly recover and increase demand for product. But it will be slow and not enough to take slack out of market for the next year or two or three.

With all this going on, you might expect that Mississippi agriculture is going down the tubes.

“That isn’t the case at all,” Lee said. “Data is collected each year on the value of agriculture production. The total value of ag production in Mississippi hit $5 billion for first time in 1998. We expect it to remain above $5 billion in 1999, and be somewhere in that same general area for 2000. How can that be with such low prices? The situation is that we now have very diverse agriculture. And while the market value has dropped 34% since 1997, overall value for all the state’s agriculture has gone up.

“The reason for that is that those crops I just mentioned now represent less than 25% of total agricultural and forestry income in the state. Twenty-five years ago they accounted for more than half. In the past 25 years and particularly last 10 years, forestry has increased greatly in value to more than $1 billion per year. Poultry has gone from a few hundred millions to $1.5 billion last year. Catfish, which wasn’t even on the list 25 years ago, is now worth more than $300 million per year just from farm production.”

In fact, in 1999 when you add forestry, poultry and catfish, those three together accounted for two-thirds of all agricultural production in the state. Lee adds that sweet potatoes have become a very valuable crop, horticultural crops (fruits, vegetables and ornamentals) are increasing in value, and the state now has a significant blueberry industry.

“When you put in all these miscellaneous crops, some of these others have upset the decline of value in traditional row crops,” Lee said.

There is also potential to further increase earnings from agriculture. Fred Heindl, executive director of the legislature’s Mississippi Agribusiness Council, said he believes there is a tremendous opportunity for more agricultural processing, marketing and distribution of agricultural finished products.

“We have been a long-time producer of raw agriculture commodities,” Heindl said. “But the opportunity remains for us to become value-added processors of finished products. That is one of the greatest opportunities in business in Mississippi today.”

Contact MBJ staff writer Becky Gillette at mullein@datasync.com or (228) 872-3457.

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