While one must still look hard to be optimistic about the overall economy, 2011 is an exciting time for Georgia farmers, said agricultural economist Dr. George Shumaker.
Shumaker, who spent most of his nearly 30-year career as an extension agricultural economist in Statesboro, is now a professor emeritus with the Center for Agribusiness and Economic Development at the University of Georgia. He delivered the economic portion of the 2011 Georgia Ag Forecast given Thursday at the Nessmith-Lane Continuing Education Center on the Georgia Southern University campus.
Record crop prices are creating the highest profit potentials in lifetimes, but fuel prices, land rents and other production costs are also rising. Right now, speculation about where soaring prices on cotton and other staples will stop is creating a gamble as farmers decide whether and when to lock in contracts on their as yet unplanted 2011 crops.
"We go through exciting times in agriculture. We go through some depressing times too. ... I think the year 2011 holds the chance of being one of the more exciting times of our lives," Shumaker said. "As we enter into the year, we have record crop prices for many of our major agricultural commodities that we produce here in Georgia."
The record high prices available to farmers reflect record or near record lows in "carryover stocks," in other words the supplies of cotton, peanuts and grain left over from the 2010 harvest, Shumaker explained.
"It's going to be exciting. The markets are going to be on edge as we enter into the growing season hoping that once again Mother Nature provides us with weather to where we'll be able to have bountiful crops," he added.
Agriculture, Shumaker observed, is the largest single sector of Georgia's economy, with the top 65 farm products bringing $11.3 billion gross value to growers as of 2009, after the first slight decline in 10 years. Statewide totals for 2010 are not available yet, but are expected to roar back past the previous record highs. The "farm gate value" of Bulloch County's agriculture alone rose from roughly $120 million in 2009 to around $140 million in 2010, estimates Wes Harris, county coordinator with the UGA Cooperative Extension Service.
One crop, cotton, was responsible for much of this rise. While Bulloch County's planted cotton acreage more than doubled, from about 24,000 to 52,000 acres, the value of the cotton harvest more than tripled, from an estimated $14 million in 2009 to more than $50 million in 2010.
Bulloch County's peanuts yielded a more modest gain, from about $9 million to $10 million in value, as planting was actually reduced from about 14,000 acres to about 12,000, according to Harris.
Weather disasters that reduced world production in 2010 contribute to high demand for U.S. crop exports and record prices, Shumaker noted. With cotton, flooding in Pakistan and poor growing seasons in China and India cut supplies while Chinese textile mills increased their demand for raw cotton. As of this week, U.S. growers who had any cotton left to sell could get as much as $1.60 per pound, more than double the price of just one year earlier and the highest price in unadjusted dollar terms since the Civil War.
Much of the 2010 cotton crop actually sold for about $1 per pound, and pre-planting contract offers for the 2011 crop are now in the $1 to $1.10 range, say the county extension agents. While the price of peanuts has not climbed as precipitously, the crop that sold for $450 to $500 per ton a year ago is now bringing contract offers of $550.
Shumaker relayed a prediction, which he attributed to another UGA farm economist, that peanut contract prices may yet rise above $550. Market volatility, he acknowledged, leads to a guessing game as farmers want to wait for the best price possible, but not so long that they fail to secure a contract or see the trend reverse itself.
"We're going to see high volatility in our markets. It's going to make it very difficult to make decisions on when to price our commodities and how to go about pricing them," he said.
Noting a "mixed picture" of disappointing to record yields for Georgia crops in 2010, Shumaker also made clear that the "excitement" isn't entirely positive for all parts of the farm economy. Higher corn and soybean prices mean higher production costs for poultry, beef and other livestock.
Meanwhile, higher fuel prices are leading production costs upward for row crops, with fertilizer and pesticide prices also trending higher and upward pressure on land rents. But so far, the record crop prices are more than enough to make up for the increased investments, and Shumaker spoke of positive impacts on business in farming communities.
"Industries that support agriculture and provide the various inputs have seen a good year over the last year and will probably continue to see good demand for their products and services," he said. "The farmers have got money to spend; they're probably going to spend it. We'll see some retooling of equipment, increased demand for a wide variety of farm inputs."
He also placed the generally upbeat farming outlook, with its uncertainties, in the context of a still sluggish overall economy, where despite a rising stock market, the unemployment rate remains over 9 percent nationwide and more foreclosures are predicted before the housing market recovers.
"There are some mixed factors out there," Shumaker summarized. "For me it's very difficult to find many bright things to look at in terms of the macro factors. ... I think at best we may see a steady state but there are areas in which we see greater risks of downside."
In separate interviews, Harris and Evans County Extension Coordinator Mike Dollar confirmed that the record high crop prices are generating both excitement and uncertainty for local farmers.
"I think the uncertainty comes primarily from whether or not to try to take advantage of forward pricing your commodities," Harris said. "With cotton prices so high on the December market, there's a lot of farmers going ahead and pricing a lot of that cotton ahead of time."
This will affect decisions, he said, on how much land is devoted to cotton, and how intensively it is farmed. Farmers tend to devote more expensive resources, such as irrigation systems, to pre-contracted crops versus those to be sold on the open market.
"We think there will be some real prudence, we're already seeing evidence of that, where producers are not going to get overly greedy in a rising market like this," Harris said. "Anything could happen. ... But if we make a decent crop, I think it's going to be good news all the way around."
He acknowledged that, in addition to increasing fuel, fertilizer and farm chemicals prices, cropland rents and potential sale values are trending higher.
"The good news on that end is, we're building farm equity," Harris said.
In Evans County, Dollar said, farmers are seeing as much as a 20 percent increase in rents, although it varies with relationships between growers and landowners.
"The fee paid to landowners for the use of their land has increased from last year to now as a direct result of the increased commodity prices that farmers have been getting," Dollar said. "If you're a landowner, that's a good situation to be in. If you're a grower it puts you in a competitive environment with other farmers, more like a bidding war."
Another trend Dollar sees is farmers pre-purchasing supplies in expectation that costs will rise further by spring. They are filling storage tanks with diesel fuel and stockpiling fertilizer and chemicals.
"That's part of that spreading that money around kind of thing," he said. "More of that has gone on this year than I can remember ever before."
About 130 people, including county agents, bankers, farmers and 4-H Club members attended the Georgia Ag Forecast event, one of five held by the UGA College of Agriculture and Environmental Sciences in the state's farming country. The luncheon meeting also included speakers on the U.S. Department of Agriculture's Farm to School program.