Louisiana Agriculture Had Mixed 2005 Faces Uncertain 2006

1/28/2006 4:47:25 AM

News Release Distributed 01/27/06

Louisiana’s agricultural producers already faced problems including drought, high fuel and fertilizer costs and low prices for their commodities in 2005 even before the hurricanes struck, an LSU AgCenter economist said Friday (Jan. 27).

"What Katrina and Rita did was make a very difficult situation worse," said Dr. Kurt Guidry of the LSU AgCenter’s Department of Agricultural Economics and Agribusiness.

Despite the troubles, most row crops produced relatively good yields before the storms, Guidry told more than 200 Louisiana farmers and agribusiness leaders at the 2006 AgOutlook Conference in Baton Rouge.

The conference, sponsored by the LSU AgCenter along with the Louisiana Farm Bureau Federation and the Louisiana Department of Agriculture and Forestry, brought together experts from across the country to discuss "Keeping Louisiana’s Agriculture Competitive."

"We were facing some severe conditions for some producers before the storms," Guidry said. "Hurricanes Katrina and Rita aggravated already difficult times for some Louisiana farmers."

The effects of the two hurricanes left Louisiana agriculture with nearly $1.6 billion in lost income or lost investments, Guidry said. On top of that, his 2006 forecast includes increased production costs, stagnant or lower commodity prices, residual effects from the hurricanes and lower government support for row crops.

For many commodities, profitability of both the current and future crops will be affected beyond reduced production because of reduced quality and some lost local markets – particularly for fruits, vegetables and crawfish, Guidry said.

The effects of the hurricanes will only compound difficulties already facing agricultural producers across the country, according to experts who spoke at the conference.

"We’re in a farm policy wilderness without a compass," said Dr. Daryll Ray, professor of agricultural economics and director of the Agricultural Analysis Policy Center at the University of Tennessee. "We’ve lost our bearings."

Ray said the government’s approach to farm policy has changed in the past 30 years. "We still have the policy of plenty, but we have eliminated the policy to manage plenty," he said.

Ray said technology is increasing production faster than the world’s demand. Globalization of agriculture has led to worldwide supply growth. Yet, lower prices haven’t solved the problem.

"The self-correction of other sectors of the economy does not work so well in agriculture," he said, looking at aggregate agriculture as a whole. The responses of higher demand and lower production to lower prices experienced in other sectors of the economy don’t necessarily hold true for agriculture.

Despite the lower prices for agricultural commodities, export demand for agricultural products hasn’t increased, Ray said. U.S. agricultural exports have remained relatively stagnant in the past 25 years, while the growth in foreign markets has been served by Argentina, Brazil, China, India, Pakistan, Thailand and Vietnam. Lower prices for commodities also have not meant fewer acres devoted to agricultural production

"Farmers plants all their land to something all the time," Ray said, pointing out that excess capacity will be a problem in the future because of yield increases in other countries and new acreage coming into production in developing countries. Given this excess capacity, he suggested U.S. agriculture must look for alternative uses for its commodities – other than the traditional role as an export item or a food product.

Ray also suggested continuing to expand agriculture’s role in meeting the country’s energy needs. In addition to using corn and soybeans in the production of ethanol and biofuels, the industry must look at other commodities as potential fuel and energy sources.

Dr. Abner Womack, professor of agricultural economics and co-director of the Food and Agricultural Policy Research Institute at the University of Missouri-Columbia, offered a "very cautious outlook for agriculture" because of rising prices for fuel and fertilizer and increasing interest rates.

"It’s not a healthy-looking general economy," he said.

In the agricultural sector, Womack said the only two commodities showing strength are rice and wheat because of lower worldwide inventories.

"It’s not a happy outlook in the next couple or three years for cotton," Womack said, pointing that worldwide cotton supplies are growing and domestic prices are under more pressure.

"On the crop side, the caution flag is really running high," he added. "We need to get conservative and careful."

While the price of oil is going up and the price of corn isn’t, "The ethanol industry is holding the oil industry by the neck," said Dr. Hosein Shapouri, an economist with the U.S. Department of Agriculture’s Office of Energy Policy and New Uses.

"We expect to produce more ethanol. It’s cheaper than gasoline," he said.

Although producing ethanol from sugar is easier than from starch, sugarcane is too expensive a feedstock compared with corn, he said as he listed the advantages and disadvantages of producing ethanol from sugarcane compared to corn.

At the same time, he said, technology doesn’t exist to competitively produce ethanol from biomass.

Daniel Whitley, a senior analyst in the Multilateral Trade Negotiations Division, International Trade Policy in the USDA’s Foreign Agricultural Service, talked about international trade policy and the importance of international trade to U.S. agriculture.

The United States is the world’s largest agricultural exporter, and 25 percent of U.S. agricultural sales are exports, Whitley said. Impediments to world trade include trade-distorting farm subsidies, export subsidies and high tariffs.

"We will not put U.S. farmers and processors in positions where the playing field is not level," he said.

Whitley said the focus of international trade talks is on market access.

"We have to talk about issues that will be meaningful gains for U.S. agriculture," he said. "That means focusing on market access."

The primary purpose of the conference was to look at "where we’ve been and where we’re going with agriculture in the future," said LSU AgCenter Chancellor Bill Richardson.

Ron Anderson, president of Louisiana Farm Bureau, said the conference gives people in production agriculture ideas and opinions and the opportunity to hear from experts.

"We try to work for the common good of everybody involved," Anderson said.

The conference offered an opportunity to see what’s going to be profitable this year, said agriculture commissioner Bob Odom.

"Farming is going to tough, tough, tough in Louisiana this year," he said. "The infrastructure needs to be redeveloped so agriculture can continue to be strong."

On the positive side, Kelsey Short, director of agriculture/forestry/food processing for Louisiana Economic Development, said the state is optimistic about agriculture’s future in Louisiana.

He cited three "pieces of encouragement" in recent federal legislation – very aggressive bonus depreciation of 50 percent, investors’ ability to amend tax returns for the past five years to recapture losses and $7.9 billion in tax-exempt bonds.

"These are going to go a long way to turning the economy around," he said.

For more information on the conference or the various programs of the LSU AgCenter, visit www.lsuagcenter.com.

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Writer: Rick Bogren at (225) 578-5839 or rbogren@agcenter.lsu.edu

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