Farmers know that farming is an increasingly difficult and complex business. Planning, including careful budgeting and developing marketing plans, is key to success.

The past 2-3 years have not been kind to Georgia farmers. There is little that farmers can do about the weather. Planning cannot guarantee success nor can it provide a hedge against disaster. Nevertheless, budgeting and planning is a part of successful management and provides a useful roadmap that can, should, and will be adjusted throughout the year. Farmers must know the risks they face and manage or minimize risk when necessary.

This publication contains brief economic and price outlook statements for Georgia agriculture. Conditions can and do change but these statements can make farmers and others aware of conditions and factors that will likely shape the 2001 production year. The publication also contains enterprise budgets, net income comparisons, and other information and analysis that should assist in the planning process.
 
 

The U.S. economy is enjoying the eighth year of dynamic expansion. The nation's Gross Domestic Product (GDP) has been on the rise since the second quarter of 1993. This growth resulted in higher demand for labor that is reflected in record low unemployment figures which averaged 4 percent in 2000. It has also been accompanied by an incredibly low inflation rate. The increase in the private, non-farm GDP deflator is running at 2 percent for 2000. Dynamic U.S. growth has continued despite economic downturns in the developing countries in Asia and Latin America and a slower expansion in Europe and Japan. 

A strong global economy means strong demand for US exports. A possible devaluation of the US dollar relative to other leading currencies in the next few years is expected to make US exports more competitive in the world market. According to USDA projections, the value of US agricultural exports in fiscal year 2001 should increase to $51.5 billion-- 2 percent above 2000. Much of this increase should be due to volume as the prices of many commodities are expected to remain low because of abundant supplies. The projected trade growth should contribute to rising market prices, increases in farm income, and stability in the financial condition of the US agricultural sector in the long run.

Low commodity prices and higher costs resulting from rising fuel prices resulted in a drop in net farm income in 2000 to $40.4 billion, the lowest level since 1995. Net farm income is expected to continue trending downward with USDA projections at $34.4 billion for 2001. This decrease in net farm income will be partially due to a decrease in government payments. Payments are expected to fall in 2001 to $16.4 billion from estimated $32.3 billion in 2000. Due to the expected trade growth, however, longer-term projections are more favorable as Net Farm Income is expected to increase to $36.1 billion in 2002 and continue to grow in the future.

Benefitting from the nation's overall expansion, the economy of Georgia has grown an unprecedented 51 percent since 1991. This growth was combined with low unemployment which averaged 3.6 percent in 2000. Although this growth is expected to slow down, it is still likely to remain far above the US average according to University of Georgia, Terry College of Business projections. In 2001 Georgia's real gross state product is expected to increase 4.5 percent compared to 3.5percent growth in the nation's GDP. Farm personal income of Georgia farmers is expected to decrease slightly from $12.1 million in 2000 projected by the Terry College of Business. It will be accompanied by projected lower government payments and stable commodity prices.

An overview of major Georgia commodities indicates strengthening in the state's ag sector. The outlook for cotton is favorable with prices continuing to stabilize and possibly increase as a result of tightening world supplies and growing demand. The difference between world and US cotton prices are less than historic average, which also suggests a possible increase in the price for U.S. cotton. Peanut prices are expected to remain at support levels despite drought conditions. The current trends in the peanut industry are expected to continue and will be reflected in lower additional peanut acreage, higher yields, steady growth in demand and strong foreign competition. Economic recovery in Russia and Hong Kong has generated improved export markets for U.S. poultry. Profits in 2001 will again depend on feed costs and level of production. Improvements in beef demand brought higher prices to U.S. livestock producers in 2000 and prices are expected to remain strong in 2001. Fruit and vegetable production in Georgia is projected to continue to increase.

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Higher prices for fuel, fertilizers and borrowed funds will translate into higher expense for Georgia farmers in 2001. Fuel is the most-watched of all factors as many inputs are derived from fuel and delivered in vehicles powered by fuel. 

Total estimated farm expenses in Georgia for next year are shown in the following chart. While the previously mentioned expense items are of concern, it should be pointed out that fuel is a relatively small part of total expenses of most enterprises. Further, expenditures for fertilizer constitute less than 10% of costs and interest for operating loans between 5% and 6% of all costs. Many of the chemicals used are fuel derived, which bodes for some price increases. However, some herbicides are beginning to come into generic production, which translates into lower prices for some of these items.

Higher crude oil price has also resulted in higher natural gas prices. Natural gas has doubled in the past twelve months. Natural gas accounts for 76% to 80% of the production cost for anhydrous ammonia. Anhydrous is in the range of $300 per ton, up roughly 1/3 since spring.

No improvement in fertilizer prices is expected by 2001 planting season. The risk of even higher prices is serious should the U.S. experience a cold winter. This would result in increased demand for natural gas and home heating oil. Over the past few years natural gas has typically traded in the area of $2.00 to $2.50 per million BTU's. Currently it is trading for around $4.60 per million BTU's. A severe winter that drives natural gas prices upward (to say $6 to $7 per million BTU's), could take anhydrous ammonia to near $400 per ton retail by spring 2001. Georgia's most nitrogen dependent crops include corn, wheat, hay, and to a lesser extent cotton.

Interest rates on farm operating loans will likely be 10% or higher by early next spring. Most lenders price their funds based on the average cost of funds to the institution. But most also have slow responses to federal open-market operations and few will raise their rates substantially in the face of weak farm income. Further, all farm lenders have to compete for a shrinking pool of borrowers.

Expenditures for feed and hay constitute nearly 1/4 of Georgia farm expenditures. Much of this is feed for the broiler industry. Although small grain and feed grain production was near record in 2000, domestic use of these grains for feed is expected to rise as the number of animal units increases on livestock and poultry farms. This increased usage will temper the lowering of feed prices but feeds will continue to be reasonably priced relative to content

(digestible protein, fiber, nutrients, energy, etc.). For producers needing to buy hay during the winter months, finding quality hay and at a historically reasonable price may a challenge as the droughts of the past years have not only dried up the soils and pastures, but also the supply of hay in the Southeast.

The overall cost of production for most of Georgia's principle row crops will likely be 3% to 10% higher than last year. Crops with few tillage operations, little chemical use and little or no nitrogen use will show small cost increases. At the other extreme, heavy users of these inputs can expect higher cost increases. 

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The US corn crop for 2000 will be near 10.054 billion bushels according to the November USDA Crop Production report. The is the second largest crop topped only by the 10.1 billion bushel crop of 1994 and was harvested from 73 million acres with average yields of 137.7 bushels per acre. When we combine this crop with carry-in stocks of 1.715 billion bushels we find a total corn supply of 11.78 billion bushels, the largest since 1987. These large supplies present a huge challenge to the market to find price levels that will stimulate usage.

USDA projects that use will rise 6 percent to a record level of 10.1 billion bushels. Off take is projected to increase in all three major use categories. Domestic feeding is pegged to be record large at 5.85 billion bushels, up from 5.67 billion bushels last year as the poultry and hog sectors expand production. Cattle feeding may also post a modest increase. Lower feed prices are working to increase profits in livestock production and that translates into expansion. Exports are projected to rise sharply from 1.93 billion bushels to 2.275 billion bushels with the majority of the increase headed toward Southeast Asia and possibly China. A likely weakening of the very strong dollar is also expected to aid export sales. Food, seed and industrial uses are projected to continue steady growth rising to 1.975 billion bushels. Increased oil prices will make ethanol production more competitive. Corn sweeteners and fructose markets continue to expand domestically.

Ending stocks will be near 1.68 billion bushels if USDA projections come to pass. That would be a slight decline from beginning stocks of 1.72 billion bushels. The carry out stocks-to-use ratio would also decline modestly from 18 percent to 16.6 percent. Typically both these trends would point to strengthening prices and we should see prices for the 2000 crop a bit higher than for last year's corn.

The season average price for the 2000 crop will be near $1.90 per bushel. Georgia prices will likely average about 25 cents above the national average. The 2001 corn crop is expected to average $2.10 per bushel. 

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US farmers harvested a record large soybean crop of 2.777 billion bushels in 2000 with an average yield of 38 bushels per acre from a record l73 million harvested acres according to USDA's November Crop Production report. The crop was up about 120 million bushels over the 1999 crop. When we combine this crop with carry in stocks of 288 million bushels we get a total supply of 3.068 billion bushels, also a record large amount topping last year's supply by 62 million bushels.

If these projections come to pass, ending stocks will rise from 288 million bushels to about 350 million bushels and the stocks to use ratio from 10.6 percent to 12.9 percent. 

Normally, prices would come under pressure with these changes but it is quite likely we will see a very slight improvement in prices from a season average of $4.65 for the 1999 crop to $4.70 for the 2000 crop. The 2001 crop is expected to average $5.00 per bushel.

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The wheat market remains in the doldrums. Wheat futures prices have ranged between $3.00 and $2.20 per bushel since May of 1998 and show little likelihood of improving without a significant change in supply or demand fundamentals.

The outlook for the 2001 US wheat crop looks for lower planted and harvested acres. At this point, I expect US wheat growers to plant about 61.5 million acres to wheat and harvest about 53.7 million acres. While the planted acres number is one million below the 2000 crop year, the harvested acreage number is up 700,000 acres. This is based upon a return to more 'average' harvest versus abandonment. Trend yields would point to an average harvest of 40.7 bushels per acre resulting in a projected 2001 crop of 2.186 billion bushels, down from 2.223 billion bushels in 2000. Total supply would equal about 3.17 billion bushels, down from 3.27 billion bushels last year. This would be a modest positive movement.

Over the past 5 marketing years, wheat off-take has varied only from 2.298 billion bushels in 1997 to a high of 2.427 billion bushels in 1998. Major changes are not apparent at this point. Lets assume that 2001 wheat use equal to the 2000 crop at 2.376 million bushels, pretty close to the middle of the last five-year range. If that comes to pass, ending stocks would drop slightly from 892 to 796 million bushels. The stocks to use ratio would remain high at 33.5 percent.

Season average prices should increase slightly from the $2.60 per bushel for the 2000 crop to about $2.80 for the 2001 crop.

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Again in 2000 as in 1999, price (when including LDP) has not been the primary concern. Major problems have been low yield and grade. Looking ahead, the backdrop for the 2001 price outlook can summarized as - increased foreign mill demand, world production short of demand resulting in declining stocks, uncertain foreign acreage and production, rising A-Index, and potential increased US production

USDA's November estimates peg world production at 86.7 million bales. Adding stocks, this would be the smallest supply since 1996. Cuts are expected in the US, India, Pakistan, and China and would reduce supplies further.

In 1998, world cotton consumption fell 3% due to the economic crisis in southeast Asia. Mill business in southeast Asia has now recovered and USDA projects world consumption at a record 92.53 million bales for the 2000 crop. For the third consecutive year, consumption is expected to outpace production and stocks decline to the lowest level since 1995.

Compared to 1998, mill use is up 1 million bales in both Pakistan and India, up 3.3 million bales in China, and up 350,000 bales in Mexico. There is little doubt the world cotton situation is being driven by foreign mill demand. Should demand remain strong, it places added sensitivity on production. World production was 92 million bales or higher only twice in the '90's.

The "A" has increased 6 cents since the beginning of the 2000 crop marketing year on August 1 and is at the highest level in 2 years. If demand remains strong and stocks tight, the A-Index should continue to increase into 2001. USDA projects a 2000 crop year ending world stocks-to-use ratio of 38%. Historically, this type supply/demand balance has resulted in an "A" in the 70-cent area. Should history hold true to form, the "A" should continue to increase and US prices track with it.

In it's November report, USDA pegged the 2000 US crop at 17.51 million bales. The crop will likely fall below 17 million as the report did not account for deteriorating harvest conditions in Texas. Reports have also tended to reduce US export estimates as crop size is reduced. US exports are currently forecast at 7.6 million bales. Still, this would be a decent level of exports by recent standards particularly considering that China is not expected to be a major buyer. On net, projected US ending stocks have held around 4 million bales.

The outlook for winter-spring 2001 is optimistic assuming tighter world supplies, strong demand, and continued increase in the A-Index. Producers should have opportunity to price a portion of the 2001 crop in the upper 60's or better.

US growers face 2 potential problems, however, that could lead to price weakness by harvest if not before. First, US mill consumption has fallen tremendously. Mill use has dropped from 11.13 million bales in 1996 and 11.35 million in '97 to a projected 10.0 million for the 2000 crop. US total retail consumption of cotton continues to increase but a higher percentage is coming from imports of fabric and finished products. This implies US producers are increasingly dependent on foreign mills and exports for price direction.

Second, US cotton acreage has not responded to low prices. Low prices for alternative crops and high cotton LDP's have kept acreage in cotton. Below average yields in '98, '99, and 2000 have been the only thing keeping the US from consecutive 18 to 19 million bale crops.

US acreage in 2001 is expected to about the same as in 2000. Should weather cooperate, a crop of 19 million bales is possible. With a crop this size, near record exports will be needed to avoid building stocks. Should world demand remain strong, another good export year is possible-- but the question is whether or not foreign production and competition will be enough to return US prices down to the low 60's.

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Before planting the 2000 crop, peanut producers faced a possible marketing assessment of $46 per ton to cover a $71 million loss in marketing 1999 additionals through the CCC loan. Thanks in part to the federal government budget surplus, Congress authorized suspending this assessment and paying for '99 losses with previous marketing assessments ($28.3 million) and future assessments through 2002. This leaves little room for future program losses. 

The 2000 peanut quota allotment was unchanged from 1999. The national average quota support price is $610 per ton by statute through 2002. The loan rate for 2000 additional peanuts was dropped from $175 to $132 per ton. Producers reversed trend this past spring and planted fewer acres than in 1999. Planted acreage had been slowly increasing since 1996 when 1.4 million acres set an 18-year low. During 2000, 1.5 million acres were planted and nearly 1.4 million harvested. Heading into January, the U.S. average yield was projected at 2500 pounds per acre, down 167 pounds from 1999. U.S. production looks to total 3.513 billion pounds (1.757 million tons)-- roughly equivalent to the '97 crop in total production, yield, and harvested acres. 

For Georgia producers, 2000 will end up better than thought possible. In November, USDA estimated Georgia's yield at 2800 pounds. Harvested acreage is estimated at 507,000 acres, down 37,000 from 1999, to give a total production of 1.42 million pounds (710,000 tons). Despite better yields, the 2000 crop was expensive due to higher fuel prices and increased irrigation. 

Domestic consumption of edible peanuts was up 3% for the 1999 crop and exports rebounded 30%. But crushing nearly doubled as loan quota peanuts were crushed leading to CCC losses. Cash receipts in Georgia from peanuts totaled $381 million in 1999. This was the first time cash receipts (not including government payments) dropped below $400 million since 1983.

The 2001outlook for peanut growers is a continuation of recent trends given the current government program and world conditions. U.S. consumption will be watched closely. Consumption started the 2000 marketing year lagging behind 1999 by 5%. The 2001 quota allotment will remain unchanged from the 2000 level of 1.18 million tons. Exports show the US losing market share. India and Argentina have captured part of the export market from the US and China. Exports are projected to decline 19% for the 2000/01 marketing year. Improvement will be slow while the US dollar remains strong.

Producers with loan additionals should begin 2001 in a better mood than 2000. Greater use of buybacks in 2000 to make up for quota shortfalls in drought areas of the Southeast will return a pool profit of about $250 (December projection) above the $132 support price. With the poor finish to the Southwest crop, there is potential for purchase of additionals from loan for export and domestic edible use which would increase the pool profit outlook.

Southeast producers could be tempted to increase additionals acreage in 2001. Producers should plant for the market rather than speculating on non-contracted additionals. Otherwise, without a surprise increase in demand or a quota shortfall, more additionals could lead to program losses.

The outlook beyond 2001 is uncertain. NAFTA changed the game for the peanut industry by setting in motion the lowering of tariffs on import peanuts from Mexico. The Free Trade Agreement of the Americas could extend such a policy to Argentina and Nicaragua. The peanut program is likely to come under attack in the next round of farm bill deliberations. Current price support levels appear at odds with trade policies and supply control programs are not "in favor" in Washington D.C. Despite challenges, peanuts will continue to play an important role in Georgia's agricultural economy. How "peanut dollars" are distributed geographically and among producers remains uncertain with the potential changes to policy and marketing.

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Tobacco is one of the few remaining crops with a production restriction and support prices. But the basic flue-cured quota has been reduced 44% since 1997, due primarily to a reduction in tobacco purchases by U.S. cigarette manufacturers. A producer who grew 100 acres of tobacco three years ago has seen annual gross receipts from the crop decline $75,000, and farm profits drop about $20,000. 

The farmer has seen three major changes in the tobacco program and production during the past three years. The quota reduction has had the greatest impact. Also, tobacco buyers are advocating growers put the leaf in bales (750-850 lbs.) before marketing. Now growers are facing an apparent mandate to install heat exchangers in barns that permit exhaust gasses to flow through the cured leaf (not all barns have this characteristic). The current word is that tobacco cured in barns without heat exchangers will not be eligible for 2001 price support.

These three changes have either reduced farm receipts or have resulted in increased operating and/or capital costs. All have reduced profit. The curing barn retrofitting can cost from $3,000-$6,500 per barn, although some funds are available to help defray these costs.

But the decline in quota (and amount of leaf placed on the floor) have tobacco manufacturers seeking ways to better insure a stable amount of quality leaf. One means currently being tested is direct marketing contracts between the grower and leaf buyer - bypassing the auction market. This is a form of contracting, and would specify prices for the various leaf grades. But, some growers see this perhaps leading to a form of vertical integration, where the grower may be at the mercy of a few tobacco buyers. If successful. this has the potential to eliminate producers with small acreage as it would be easier for tobacco companies to negotiate with a few large producers rather than a large number of small growers.

The 2001 flue cured quota will be announced on December 15. Its' primary components are tobacco companies buying intentions in 2001, plus the past three year's average tobacco exports, plus amounts needed to keep a given amount in stabilization stocks. If current stabilization stocks are greater than the amount specified, this factor becomes a negative number. In recent years, some sales of these stocks have been made just prior to the quota announcement.

Trying to guess buyer's intentions and sales of stabilization stocks is not an exact science. The 2001 basic quota will be public knowledge by the time this report is released. The guess here is that it will remain basically unchanged or reduced slightly. 

The attack on tobacco has often gone beyond reason and has gotten politicized. Although the crop is still a legal commodity, the anti-smoking sentiment, higher excise taxes on cigarettes and the companies levying higher prices on cigarettes to recoup costs of the Master Tobacco Settlement have made tobacco production uncertain. There is speculation that China may end it's ban on U.S. tobacco that was imposed due to concern about blue mold spores. But this is all speculation and will not likely have a great impact on U.S. production.

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The year 2000 was suppose to be the year cattle producers started rebuilding cow herds and cutting beef supplies sharply as heifers entered cow herds instead of feedlots-- resulting in retail and farm beef price strength. For the year, fed cattle prices did average about $4/cwt. higher than in 1999 but beef production was up by 2% marking a new production record. In fact both prices and production closed the year up for 14 straight quarters.

The apparent improvement in beef demand of the last 2 years after more than 20 years of decline may be traced to several factors. The economic boom has provided more spending power to consumers. High protein diets have also become popular. Waning consumer safety concerns about beef and a return of consumers desire for flavor in their diets have also been advanced as causing the turn in beef demand.

With beef demand improved and cattlemen returning to herd rebuilding, cattle producers are expected to have the best of both worlds in 2001. Cattle production during the first half of 2001 will continue large and will pressure fed cattle prices. However, if demand holds, fed cattle prices may fall to less than the mid $60/cwt area. Cattle slaughter will likely fall the first of 2001 but high slaughter cattle weights will keep production high until at least mid year. Cattle feeders will struggle to make money despite low feed prices as reduced calf numbers keep them bidding returns into the price of purchased calves. The likelihood of reduced beef production in late 2001 and low grain prices will keep feeder cattle prices at close to record margins above fed cattle with heavier feeder steers in the mid $80/cwt area and feeder calves a $1.00/lb or better. Georgia cattle producers should find 2001 to be the most profitable year of the last 10, provided forage producing rain accompanies higher cattle prices.

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The US pork industry returned to profitability in 2000 with low feed cost, good demand, and a modest price-enhancing 2% decline in production. The profits made during 2000, however, will not replace the estimated $4.4 billion lost by the from November of 1997 to February of 2000. Pork producers will respond to the new found profits by increasing production as they always do.

Pork prices are expected to remain profitable through the middle of 2001 before diving into the red by the fall due to an expected 2% increase in production. Production will accelerate as we move through the year and prices will correspondingly fall. For the first half of 2001, live weight pork prices will be mainly in the upper $30/cwt to mid $40/cwt area during summer. By the end of the year, prices will fall into the low $30's-- below average production cost. 

Consumer demand for pork has been growing and particularly for certain pork products. For instance, bacon prices reached record levels during the first half of 2000 with the average price of a pound of bacon up more than 17% from 1999. Belly prices actually exceeded loin prices at times during early 2000. Retail pork prices were up 7% the first half of 2000 while the average live hog price was up more than $13/cwt. Approximately two-thirds of the increase in the live hog price was due to higher retail pork prices with most of the remainder coming from tighter packer margins.

While pork demand has apparently been on the upswing the last few years, stronger demand will not offset the negative price effects of expected production increases. Unfortunately, pork demand did not appear nearly as strong during the last of 2000 as during the first half.

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All segments of poultry production were at least marginally profitable in 2000 due mainly to low feed prices. 2001 will likely be a rerun of 2000 with profits highly dependent on feed prices remaining low. Even this, however, will not likely be enough to keep egg producers out of the red.

Even with low feed cost, profit margins were tight for broiler producers in 2000 with some producers incurring losses. Broiler production slowed considerably by mid year due to profit problems, registering only a 3% gain for the year. This was only the third year-to-year broiler production growth below 4% in the past 18 years and well below the 20 year average growth rate of 5%. 2001 production growth is expected to be only slightly larger than 2000.

With consumer demand for all broiler meat except white meat experiencing sluggish growth, increased production has resulted in declining prices. Strong domestic demand fueled gains in boneless breast prices beginning in 1998 but prices began to collapse in late 1999. Breast price during the first six months of 2000 were the lowest in 10 years. Fast food demand growth has bolstered wing meat prices. At the same time, a resurgent export market has provided some help to dark meat prices. Exports in 2000 were up by about 7% but will not likely register further gains in 2001.

The yearly average broiler price for 2000 was about 4% below the 1999 average and was the lowest whole bird price since 1995. Despite the price decline, profit margins for most producers remained positive in 2000 due to low feed prices. As a result, production in 2001 will likely grow at slightly more than the 2000 rate, but still below the long term average growth rate. If producers increase production by 4% in 2001, expect another 2 cent drop in prices down to the 54 cents per lb. level for the yearly average price. In this case, broiler production returns would be paper thin with little room for unexpected negative changes in feed prices or meat demand.

Turkey profit margins exceeded broilers in 2000 with production up a modest 2%. 2001 turkey production will be up another 2%. Turkey prices may rise again in 2001, leading to an even better profit margin than in 2000. Turkey exports will show little growth in 2001 after a 6% growth in 2000. 

From a low per capita consumption of 235 eggs in 1995, per capital consumption was 260 in 2000. Per capita consumption has grown at an annual rate of 5 per person the last five years and is expected to continue to grow in 2001. Production growth, however, has led to lower prices. Egg prices were about one cent per dozen lower in 2000 than in 1999 and likely represented a near breakeven situation for most producers. Prices are likely to decline 1 to 2 cents per dozen in 2001. If feed prices decline again in 2001 and production is held in check, egg production will again be somewhere close to production cost. Large losses have not occurred in the industry since 1995, however, 2001 is shaping up like the closest thing to a losing year since 1995.

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Milk production was up about 4% over year-earlier levels for the first 10 months of 2000. During the same period, demand has increased about 3%. The result is the lowest farm milk prices is 25 years. These low prices have been offset by some of the lowest feed prices in recent history. The August U.S. milk-feed price ratio was 3.42, only slightly lower than the 3.85 for last year. 

In Georgia, margins have been tight but production has declined only slightly. Production through September was down .96%. As of November 1, 2000, there were 401 dairies located in the state. This was a decline of 7 during the year. However, several large dairies are under construction and production may begin to increase by the beginning of 2001.

Federal order reform has both helped and hurt Georgia producers. Lower Class I utilization in the Southeast order put downward pressure on price but this was more than offset by a new Class I price mover. The current system uses the higher of the Class III and IV prices to set the Class I price. Since the Class IV has been higher than the Class III price during all of 2000, Georgia producers have gained an estimated 91 cents. Blend prices have still averaged 35 cents less than 1999, but without these changes, prices would have been much lower.

Based on utilization so far this year, I estimate that utilization for the Southeast order for the year will average: Class I - 65%, Class II - 10%, Class III - 15%, and Class IV - 10%. This means that 85% of the blend price is based on the Class IV price and the low cheese prices are having a minimum impact on Georgia prices. As November butter prices soared 57 cents to $1.79/lb, cheese prices fell to below $9.00. This could result in a $12.50 Class IV price that would help Georgia farmers while the cheese price would not hurt much.

Dairy farmers will see a continuation of the current market situation in 2001. In spite of low prices, the national dairy herd continues to expand. Cow numbers in the 20 major dairy states are up 98,000 head over last year. September was the 26^th straight month that monthly production increased compared to a year earlier.

Milk prices will not improve until stocks decline and supply and demand are in better balance. Even when herd building ends, it will still take some time to work off current stocks. The major threat of reducing stocks seems to be the possibility of a slowing of the general economy. Overall farmers should expect 2001 prices to be very similar to 2000 prices. Margin will be tight but positive at least through the first half of the year. Profits during the second half will be determined feed cost.

USDA has spent almost $700 million on dairy during the last fiscal year. The expenditures break down this way: $125 million in market loss assistance payments, $165 million in Dairy Export Incentive Program subsidies and $400 million for Commodity Credit Corporation dairy support program expenditures. This year, Congress has included $667 million in market loss assistance payments to producers in their appropriations bill. The bill also extends the dairy support at $9.90 for another year and prohibits use of dried filtered milk for cheese. 

The Southern Compact will come up again during 2001. A total of 25 state legislatures, on a combined vote of 5,405 to 320, have enacted legislation to allow their states to join should Congress allow it. In spite of such support at the state level, the future of the Compact is very uncertain in Congress.

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The late 1990s witnessed an increase in annual per capita consumption of vegetables, potatoes and melons while the per capita consumption of tree fruits, berries and tree nuts declined. Retail prices of the food horticulture crops rose only at the rate of inflation, or less than five percent per year. Regardless, consumer demand is strong for fruits and vegetables.

The availability of perishable produce was seasonal a decade ago, as retailers relied on the major fresh market states for the source of supply. Today, however, fresh produce arrives in the grocery stores from all over the world, making for a competitive market where price rations the supply of perishable produce. Even with this competition, Georgia growers have found a market window for fresh market vegetables. Contract acreage for processing vegetables (namely tomatoes, sweet corn, green beans and green peas), however, is lagging behind other production regions due to a lack of processing facilities and infrastructure.

Large, over-supply of perishable produce results in lower prices. Growers experience a production - price - revenue relationship-- higher harvested quantities (due to more acreage or greater yields) typically result in lower prices and lower revenue.

Georgia growers will continue to plant, harvest and market commercially viable fresh market vegetables. Substantial acreage of lima beans, snap beans, cabbage, cantaloups, sweet corn, cucumbers, spring onions (primarily Vidalia onions), tomatoes and watermelons are expected. Smaller acreages of carrots, bell peppers, ethnic peppers, and assorted squashes are also expected.

Larger crops led to lower prices in 2000 for growers of Georgia fruit and pecans. Acreages of apples, blueberries, grapes, peaches and pecans have trended downward but yields have typically increased enough to offset the loss of acreage so that production has risen. Georgia fruit and tree nut producers have both a comparative advantage (volume) and a competitive advantage (dollars). Barring adverse weather conditions, producers in 2001 are likely to continue to experience prices, yield, and income consistent with the past.

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Demand or consumption in the "green industry" is measured in dollars spent at retail on a per capita basis. Retail expenditures in 1999 for nursery and greenhouse products topped $ 57 billion. A breakdown of this $ 57 billion indicates that $40 billion ($146 per capita) was spent at retail by consumers for environmental horticulture (trees, shrubs, bedding and garden plants, turf and sod). The remaining $17 billion ($60 per capita) was the retail outlay for floriculture (cut flowers, cut cultivated greens, potted flowering and foliage plants). Americans, on average, spent $ 206 per person in 1999 for "green industry" products, excluding any hard goods, chemicals or fertilizers which may also have been purchased.

Grower cash receipts- what the producers received for their plants as a farm gate value, exceeded $12.5 billion in 1999. Georgia growers accounted for about 2 % of the U.S. total, or about $ 250 million, placing Georgia among the top 10 states in value of production.

A closer look at the $57 billion in retail expenditures shows the per capita spending in more specific categories: cut flowers and cut greens-- $32 per capita, potted flowering plants-- $15 per capita, potted foliage plants-- $13 per capita, bedding and garden plants-- $25 per capita, and nursery plants, trees, shrubs, roses, ground covers, bulbs and turfgrass-- $121 per capita. Georgia growers are recognized as major producers of all these categories with perhaps the exception being the foliage component.

The Georgia green industry is expected to continue growth and expansion in 2001. The primary reasons include pent up demand to replace abandoned or withered landscapes due to the outdoor watering restrictions of 2000, increasing personal incomes, an aging population, the increasing popularity of home ownership and home gardening that accompanies it, urban-suburbia growth as commuters relocate away from the metropolitan cities, the retail/wholesale, service, or manufacturing boom in business growth, and the rising number of zoning or construction ordinances that encourage the planting of trees and shrubs and turf for ecological or environmental reasons.

The "green industry" has adapted well to meet the needs and preferences of the consumer. The turfgrass and sod industry has varieties suited for nearly every growing condition. Flower growers anticipate the colors, shapes or forms, heights or sizes, and varieties sought by consumers. Georgia flower growers also provide old standbys such as annuals, Easter lilies, mums, and poinsettias. Perennials, shrubs, and flowering and shade trees are also grown by Georgia grower-wholesaler container nurseries and field nurseries for sale to the retail trade.

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The major objectives of the 1996 Farm Bill were a transition away from direct government control of the traditional program crops and a balanced budget. Seven years of AMTA payments were designed to give farmers time to adjust to less government involvement while providing planting flexibility. The new farm bill has been tested by a collapse in the Asian financial markets, a strong US dollar and a build up of world stocks. All have combined to adversely affect US exports and market prices for the major program crops. 

Mother nature ultimately determines the world supply and it will take a serious shortfall in a major production area to turn things around. A budget surplus in 1999 and 2000 allowed Congress to step in with supplemental assistance to help support producers. More assistance is likely in 2001 if current conditions continue. How much assistance will be available is unknown as the budget surplus becomes more uncertain. Hearings and discussion about a new farm bill will begin in 2001 and continue into 2002. 
 
 

Contract payments for fiscal year 2001 will total approximately $4.1 billion. Total payments to Georgia producers are projected be $59 million. Producers may choose to receive payments anytime between October, 2000 and September, 2001. AMTA payment rates are:

Corn $0.269 / bu.

Cotton $0.0599 / lb.

Grain Sorghum $0.324 / bu.

Oats $0.022 / bu.

Wheat $0.474 / bu.

The depressed agricultural economy combined with production failures in some parts of the US led Congress to provide supplemental government assistance to agriculture. Congress approved a total of $25.8 billion in supplemental agricultural assistance, $6.1 billion for 1998, $9.1 billion for 1999, and $10.6 billion for 2000. These payments were in addition to the scheduled AMTA contract payments. Assistance included $14.763 billion in market loss assistance payments (additional contract payments) between 1998 -2000, $5.175 billion in crop loss disaster assistance in 1998-2000, $755 million for specialty crops including tobacco and peanuts for 1999-2000, $960 million in livestock assistance in 1998-2000, and $795 million in diary assistance between 1998-2000. Signup and payments for several 2000 programs will continue into 2001 including the following:

2000 Oilseeds Program - signup deadline is January 12, 2001. Eligible crops include soybeans, sunflowers, canola and other oilseeds.

2000 Peanut Market Loss Assistance Program - signup deadline is February 1, 2001. $30.5 per ton for quota, $16 per ton for additionals. 

2000 Crop Disaster Program - signup begins January 18, 2001. Eligible producers who have been affected by crop disaster.

2000 Livestock Assistance Program - signup begins January 18, 2001. $438 million available to producers for grazing losses due to weather related disasters.

2000 Livestock Indemnity Program - signup begins January 18, 2001. Up to $10 million will be available to producers who lost livestock due to natural disaster, fire and anthrax.

National Tobacco Settlement - Phase II payments determined in October & payments made the two months following.
 
 

Marketing loans and LDP's are intended to be used as a marketing tool for farmers to extend their marketing horizon while providing cash flow for paying bills. Since 1998, however, marketing loans and LDP's have become a safety net for farmers during a time of burdensome stocks and depressed prices. It is projected that marketing loans will again be heavily used in 2001. LDP's will begin to decrease as market prices slowly recover. 

Loan rates for 2001 were not available during the printing of this guide. Using 2000 loan rates for Georgia and expected prices, loan deficiency payments (LDPs) are projected in Table 1. The loan rate varies by county for corn, cotton and soybeans, thus a range is provided for LDPs. 

Table 1. 2000 Loan Rates and Projected LDP's.
 

Crop	Loan  Rates ($)	Expected Price ($)	Projected LDP ($)
Corn (bu.)	2.09 - 2.15	2.10	0.01 - 0.05
Cotton (lb.)	0.527 - 0.533	0.64	0
Sorghum (cwt.)	3.17	1.80	0.025
Soybeans (bu.)	5.30 or 5.39	5.00	0.30 - 0.39
Wheat (bu.)	$2.40	2.80	0

The 2000 Agricultural Risk Protection Act increased farmer premium subsidies for 2001to encourage buy-up coverage at higher levels. For example, consider a total premium of $30 per acre at the 65% coverage level. The previous subsidy would pay 42% of the total premium resulting in a farmer premium of $17.40. The new subsidy for 65% coverage will be 59% and result in a farmer premium of $12.30. Farmer premiums were lowered in 1999 and 2000 by a temporary 25% farmer premium discount that was part of the agricultural assistance provided by Congress. The new subsidy levels are permanently raised in 2001.

Table 2. Producer Premium Subsidies. 
 

Coverage Level	Previous Subsidy	New Subsidy
50/100	55%	67%
55/100	46%	64%
60/100	38%	64%
65/100	42%	59%
70/100	32%	59%
75/100	24%	55%
80/100	17%	48%
85/100	13%	38%

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Estimating your profit potential is an important step in making annual cropping decisions. Unfortunately, low prices the last three years have forced cropping decisions to be based upon what gives you the best chance to recover production costs. Crop budgets are published each year by the Agricultural and Applied Economics Department in an Extension publication titled Crop Enterprise Cost Analysis (AGECON94-010-S). Table 3 is a summary table of the major 2001 crop enterprises produced in South Georgia. The summary is provided for cost and return comparisons on a per acre basis. Budget estimates are intended for use as a guide when estimating individual farm situations. They are NOT an average, but representative of the inputs and costs considered necessary to achieve stated yields. Individual situations will differ according to resources and practices.

Although the outlook can change very quickly for each individual commodity, it is necessary to plan based on some type of projection. Planning is important from a cash flow standpoint, but also to increase your chances of profitability. If conditions do change, you will be better prepared to respond to the change. The summary table shows that cotton, peanuts, tobacco and irrigated corn are capital intensive requiring more operating funds and specialized equipment. Given the expected prices and yields, these enterprises show the best potential for positive returns in 2001. In general, irrigation is shown as the difference between a positive and negative return. Of course mother nature can reverse the situation, but for planning purposes non-irrigated crops have a more difficult time covering operating costs in 2001 at these expected prices.

Copies of the crop enterprise budgets, as well as computerized versions, are available from your local County Extension Agent.
 
 

Comparisons from the 2001 crop budget summary show differences in estimated costs and returns on a per acre basis. But what about the risk involved in each enterprise. Risk-rated budgets were developed to address the issue of risk as well as cash flow and profitability projections. Incorporating the risk-rated budgets with price and yield projections, a profit scoreboard is developed to give the probability of recovering production costs. Thus, producers have an indication of the risk involved at current prices and given yields.

A risk-rated budget is an enterprise budget that also calculates the probability of a return. Variability in Price and Yield is included in the budget by specifying a range of prices and yields from Best (once in a lifetime) to Worse (once in a lifetime). Results from risk-rated budget calculations are summarized in Tables 4 and 5. Table 4 gives Expected, Optimistic and Pessimistic prices and yields. "Expected" is the most likely Price or Yield with a 50% chance of being higher or lower. "Optimistic" is between Expected and Best while "Pessimistic" is between Expected and Worse. The range of prices and yields between Optimistic and Pessimistic represent a 67% probability the actual price and yield will be in this range. In other words, income is projected to fall within the Optimistic and Pessimistic range 2/3's of the time. The prices shown do not include LDP's. 

Costs shown in Tables 3 and 4 do not include crop insurance premiums. Risk and probabilities shown in Table 4 do not consider crop insurance. Crop insurance may reduce risk depending on the yield and level of coverage. 

Probability of Return Above Variable Cost is calculated using the given Prices and Yields. It is shown in the next to the last column of Table 4. The higher the percentage, the lower the risk based on the budgeted costs and return. The probability of covering Variable Cost Plus Rent is also included in the last column of Table 4. Rent is assumed to be $100 per acre for irrigated cotton and additional peanuts, $75 per acre for irrigated corn, $50 per acre for non-irrigated cotton and additional peanuts, $35 per acre for non-irrigated corn and soybeans, and $20 per acre for non-irrigated wheat. 

Table 5 is a similar summary for selected livestock enterprises. The Expected Price and Sale Weight are used along with a range of prices and weights to give the Probability of Covering Variable Cost and Total Cost. 

Note: The Return Above Variable Cost and Probabilities for cotton include LDP's if applicable. LDP's are not included for the other crops. 

The analyses shown in Tables 3 and 4 assume additional peanuts will be grown on land that could be devoted to a competing crop rather than as a result of overproduction. Fixed costs for peanut production are charged to quota peanuts and not additionals. Land rent is charged to additionals at an equivalent rate to competing crops.

Interactive Risk-Rated Enterprise Budgets are located on the Unversity of Georgia Extension Agricultural Economics homepage. http://www.ces.uga.edu/Agriculture/agecon/agecon.html

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Table 4. Risk Rated Returns and Probability for Selected Georgia Crop Enterprises.
 

* Charges for Overhead, Land, and Management are not included. 

** Additional peanuts 

# Return includes LDP for cotton if applicable.

Table 5. Risk Rated Returns and Probability for Selected Georgia Livestock Enterprises.
 

Enterprise	Expected Price Per Cwt.	Sale Weight	Variable Cost  Per Cwt.	Total Cost  Per Cwt.	Return Above Variable Cost	Return Above Total Cost	Probability of Covering
							Variable Cost	Total Cost
Cow/Calf - Spring Calving	$97	475 lbs	$55.93	$82.80	$41.07	$14.20	99%	83%
Feeder Cattle - Winter Stockering  Sell in Spring 2001	$85	750 lbs.	$80.65	$83.32	$4.35	$1.68	78%	60%
Custom Fed Cattle  Placed in Fall 2000	$74	1200 lbs	$73.83	$73.83	$0.17	$0.17	45%	45%
Hogs - Farrow to Finish Farrowing in Fall 2000 Sell Spring 2001	$41	250 lbs	$34.83	$42.99	$5.67	-$2.49	99%	14%

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