Economists: Ag sector is booming

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By Walt Reichert

Record high grain prices, record cash receipts, record net farm income and new opportunities to market farm products here and abroad spelled a booming agriculture economy for 2007, University of Kentucky ag economists told farmers and the press gathered at the annual Farm Bureau meeting in Louisville.

And the outlook for 2008 is more of the same... if, if and if. If the weather is favorable. If export markets continue strong. If demand for ethanol continues to spiral. If the economy does not slip into recession as a result of the credit crunch.

"There's a lot of excitement and optimism in agriculture," UK tobacco economist Dr. Will Snell said. "But in the back of everybody's mind is the feeling that we've all been here before."

One area of the state's farm economy that is shining less bright than others is tobacco. Prices after expenses have barely been above break-even levels for the last couple of years. With the drought this year, many farmers lost money on their crops. Income from the tobacco buyout is winding down. The number of farmers growing tobacco is about 5,000, down from about 30,000 four years ago.

And cigarette manufacturer Philip Morris's recent contract with farmers is not helping matters. The price the company is offering is essentially the same as it has been for the past three years.

"I don't talk to anybody who is happy," said local tobacco farmer Paul Hornback, who was attending the Farm Bureau meeting.

Snell said at the company's current price, a farmer getting a yield of 2,100 pounds per acre of tobacco would earn approximately 10 cents per pound over costs. But many local farmers, because of the drought, did not get yields anywhere near 2,100 pounds per acre.

Phil McCoun raised 80 acres of tobacco this year and averaged $1.46 per pound at the market. But at this point he is not willing to sign a contract with Philip Morris to produce tobacco next year.

"They're stealing that crop," McCoun said. "The company makes out like it wants tobacco but they ought to pay for it."

McCoun said he may phase out of growing tobacco over the next three years and stick with grain and cattle.

Over the last five years, tobacco has been dethroned as the king of Kentucky agriculture. Horses are the state's number one farm income earner, bringing in about 27 percent of the net farm income, which will be just over $4 billion this year. Chickens are in second place. Tobacco is not even the number one cash crop; corn replaced it this year.

Snell predicted that the state will continue to lose tobacco farmers if cigarette manufacturers do not increase prices.

Because of the decline in the number of tobacco farmers and the move to more production of tobacco in western Kentucky, Shelby is one of several counties in the state that has lost agricultural revenue over the last five years, according to UK estimates.

Brighter outlook

On the other hand, the outlook for farmers producing grain and livestock next year should be bright, UK ag economists said Thursday.

Ethanol production and export demand, especially from China, is expected to boost the demand for corn, Uk ag economist Kenny Burdine said. Farmers are likely to grow more soybeans next year than they did this year, Burdine said, but demand for animal feed should keep prices high.

UK livestock economist Lee Meyer predicted 2008 will be a good year for beef producers unless grain prices rise sharply. Burdine expects 2007 to be a better year for dairy producers.

Just about anything fruit producers get next year will be better than what they got this year, UK horticulture expert Tim Woods said. An April freeze wiped out nearly all of the state's peach and berry crops and decimated apple production. Woods predicted continued growth in the state's grape and greenhouse industries next year.