Marketing plans, crop budgets, and operating loan renewals may be on the top of your priority list, and if so, what numbers should be plugged into those spreadsheet variables? The economists at Michigan State University offer their assessment of the farm economy and you can find the essence of their work right here.

Marketing Specialist Jim Hilker and his colleagues have compiled a lengthy analysis with the background you need to complete some of those reports that will soon be due.

The general economy
US economic growth has stalled with only a 2.2% GDP in 2007, and many economists are forecasting a recession in 2008. Unsavory factors include unemployment, housing starts, mortgage defaults, and the federal deficit. Consumer and producer prices are rising which hints at inflation. But interest rates have declined, and may be forced down further. An economic stimulus check will be mailed to many taxpayers. Areas that depend on a strong agricultural economy are being rewarded.

Farm input costs
1) Increased demand for fertilizer and the fact that many ingredients have to be imported have pushed prices upward because the US dollar does not go far in paying for them. Phosphate is in the $700 per ton level, along with anhydrous ammonia. Potash is at $450, but that is up $200 from last year.
2) Seed supplies are tight, with Triple Stack Roundup Ready corn at $205 per bag, Cruiser Max soybeans at $50 per bag, and wheat seed at $15 per bag; and popular varieties are selling out.
3) Fuel costs continue upward with a 123% hike in diesel fuel since 2003 and spring prices will be $3.00 for diesel. That could go higher with devaluation of the dollar, but a global slowdown will drop oil prices, and that is at crosscurrents with the rest of the economy.
4) Interest rates are declining, but the picture of the future is foggy. Large rate cuts have recently occurred, but could increase if inflation concerns set in. Even with low interest rates, credit is tight, and banks have concerns about defaults.

Land values
Cornbelt land values are all trending up, but geographic variations certainly exist, despite a 20 year upward move. Consequently, cash rents continue an upward march, reflecting strong commodity prices. Farmers could see record earning levels, barring weather problems. Profitability continues to be a function of energy prices, which impact both crop inputs and the ethanol market for corn. Government payments have contributed to high net income, which has been put back into the land market. With long term interest rates at low levels, additional borrowing has occurred by farmers wanting to buy land.

Farm policy
The House and Senate continue to wrestle over their respective versions of the Farm Bill, which must be soon approved. Neither facilitate the integration of the world trade rules into US farm policy. In some form, both houses use elements of the 2002 Farm Bill’s commodity programs to provide price support mechanisms. The House has a national average price that determines a counter cyclical payment while the Senate uses a more localized average price. A continuation of direct payments plus the Senate’s demand for a permanent disaster aid program are among the significant elements. Both bills keep the CRP program in tact. The Congressional proposals also keep the PL 480 food donation program and the Market Assistance Program, which have drawn serious fire from other nations. Another policy initiative is the implementation of the Country of Origin Labeling program for retail meat products.

Trade
The outlook for trade will be determined by the strength of the dollar, which is also indicative of the strength of the general economy. Declines in its value have brought many buyers to US commodity markets, but have troubled US buyers of foreign products, such as oil and fertilizers.
1) The exchange rate is a product of interest rates (low interest does not attract foreign investment), the inflation rate (investors do not want inflated dollars because they buy less), rate of income growth (wealthier consumers will demand imported products), psychological factors (the confidence the investor has in the country and its currency), and government intervention in markets (a country must be ready to support its currency.)
2) Changes that occur in the exchange rate will impact trade, either increasing or decreasing it, and reduced trade implies a lesser demand for grain and other commodities that are typically exported. But depreciation of the dollar will also result in higher prices for US buyers of imported goods. For 2008, the Michigan State outlook is for a continued weakening of the dollar into 2011, before recovering by 2020. Exports will be healthy, but inputs will be expensive.

Corn
The outlook is for volatility for several years into the future. The greatest changes will result from the amount of domestic and foreign ending stocks, but smaller price variations will occur throughout the year. Coming into 2008 with the largest corn crop ever, prices are still in the high $4 range. That means the market is worried there is insufficient supply to meet the demand. The 88 mil. acres expected to be planted in 2008 is the minimum needed to meet demand from biofuel operations, livestock feedlots and exporters. Livestock feed use will fade but ethanol use will grow over 1 billion gallons from last year. But soft profits are slowing the rate of ethanol plant expansion. Exports will be the highest in 3 decades, helped in part by the lack of cheap feed wheat. A 140 bushel crop in 2008 would mean $6 corn, but a 160 bushel crop would mean $3.50 corn.

Wheat
World demand is strong because of the lack of supply, and the market is bidding for acres for wheat. Less than stellar crops both in the US and around the world have dropped the supply and increased the demand. A trend yield in the northern hemisphere will still mean tight stocks. Exports are up 30% from last year, but should fade from that level next year. Historically high prices will continue, and could be even higher with small changes from what the market expects.

Soybeans
Demand is strong, but supplies are down from mediocre crops and mediocre acreage and there are not enough stocks to offset a poor 2008 crop. The US planted fewer acres in 2007, but a record carry-in kept the supplies from running out. Crush demand is strong even with competition from DDGS. Six million additional acres are needed in 2008, but it is uncertain where they will come from. High prices will ration soybeans and soy products, keeping the average price at $10 per bushel.

Livestock
1) Hog slaughter has been at a record high and prices reflect the over-supply. Production will be up 6-9% this year and lean hogs will remain below $50. Pork demand, with the help of exports, is expected to stay strong.
2) Cattle numbers are static, but shifting within categories. Higher calf prices signal a continued expansion, although the calf crop was smaller. Beef production is expected to remain steady with most of last year.
3) Dairy prices hit record highs in 2007 with low European production and the exchange rate that benefited the buyer. Even with high feed costs, dairy operators made money with an income over feed cost of $14. Milk prices have faded and dairies will be squeezed to the point that some will exit the business. With higher prices for milk and soybean meal, dairy profits will depend on opportunistic feed purchases.

Summary
Farm budgets and marketing plans have to be fully integrated this year. Crop marketing plans will be difficult to develop because of the high production costs. Livestock marketing plans will be difficult to develop because of the high feed costs. However, lower interest rates will offset higher energy prices, and the export trade will keep commodity prices high along with biofuel demand. Any plans to expand or change profit centers will have to take general economic factors into account.