The Rural Voice, 1983-02, Page 26by John DePutter
UNCLE SAM WANTS TO BUILD
STRONG GRAIN MARKET BASE WITH
NEW PROGRAM: It was a number of
weeks ago that the so-called payment
in kind (PIK) program was officially
backed by the Reagan Administration.
But legislation got stalled in Congress.
Finally, on January 11th, President
Reagan and Agriculture Secretary John
Block confirmed that the program will
go through in spite of Congress dawd-
ling. In addition to already existing
acreage reduction programs which allow
complying farmers to cut acreage of
corn and wheat by 20%, the PIK
scheme pays eligible farmers to further
reduce their acreage up to a 50% cut.
In return, the government pays them in
grain from government stocks. What
will market impact be? It depends on
how many farmers participate and on
how analysts interpret details. USDA
said that without PIK, the corn crop for
1983 could be predicted to be around
7.6 billion bu., but with PIK in place, it
should be around 6.8 billion. "We don't
expect a wild price run-up as the result
of this program, but when you reduce
carry-over and stocks, you expect to
build a base and foundation for price
recovery in the agricultural community,"
said Secretary Block.
FERTILIZER DEMAND WILL FALL,
SAYS U.S. GOVERNMENT: Usage cuts
will be partly the result of tight econo-
mic conditions, and partly the result of
less acreage in the U.S. Nutrient con-
sumption in 1983 could drop 3 to 5%
from 1982. Farm prices paid by U.S.
farmers for commercial fertilizers next
spring could average 1 to 2% lower
than last spring. These estimates came
from USDA before the PIK program was
announced, so they might be even
lower now that further acreage cuts are
expected. Fertilizer companies, seed
and equipment firms were lobbying
against PIK because of its impact on
usage of these inputs, although some
industry reps admitted long term gains
of the program would outweigh short-
term pain.
EEC AGRICULTURAL PRODUCTION
The world is getting smaller every day
and international events can influence
decisions you make about your farm
business. In this monthly column John
DePutter will be alerting Rural Voice
readers to trends which could affect the
farming community. Since market news
it outdated as soon as it is written due
to shifts in government policies, weath-
er, political events, etc., readers should
be aware that these articles were pre-
pared Jan. 12. 1983.
FARM MARKET PERSPECTIVE
RUNNING AT RECORD LEVELS: Des-
pite world surpluses, the European
Economic Community is churning out
record production of cereals, rapeseed,
sugar, milk, sheep, pork, eggs, poultry,
wine and apples. European consump-
tion is not keeping up. In fact, it's
declining for many products, due to
rising unemployment and reduced pop-
ulation. The upshot? The European
community will be forced in future to
sell its production excesses on world
markets, at prices far lower than its
domestic prices. EEC export subsidies
are being decried by U.S. politicians.
So far, the U.S. has not retaliated by
dumping its scary butter and cheese
oversupplies on world markets as earlier
threatened. But it has announced ano-
ther 11/4 billion dollars in credit aid to
foreign buyers of its grain, in order to
compete with the EEC and other world
grain suppliers.
TRADE WAR PROBLEMS STILL LOOM
OVER GRAIN MARKETS: U.S. pro-
grams to aggressively merchandise their
products into world markets are being
pushed by American politicians. Accor-
ding to Douglas Mutch, Head Econo-
mist for Canada's Livestock Feed
Board, "the major danger is that (fur-
ther) export subsidy programs by the
U.S.... to increase their market share,
would probably be matched by other
global exporters through similar pro-
grams or lower grain offerings. The net
effect would be lower grain prices but
little or no change in market shares."
WILL DAIRY BE NEXT? In agriculture,
there are cycles. Ups and downs. It
seems that even supply -management
marketing boards are not immune to
world market gyrations. Such is the
reality of milk marketing in Canada
today. Depressed world markets are
resulting in quota cuts and increased
export levies. One Ontario Ministry of
Agriculture and Food rep. recently said
that the Ontario Farm Financial Adjust-
ment program at first was mainly
offering help to debt -ridden livestock
farmers; and more recently the aid has
been drastically needed by cash crop-
pers. "I think dairy will be next," he
said.
DECEMBER PIG REPORT GIVES
REASON FOR OPTIMISM: The Decem-
ber 22nd USDA hog and pig count was
initially seen as a little negative to
near-term future prices, because it
showed supply reductions were not
quite as sharp as traders expected.
Long term, though, most analysts were
bullish. Some market -watchers figured
prices could rise well above late De-
cember levels, as we move into spring.
The report showed all hogs and pigs in
the U.S. at 9% below a year ago,
PG. 26 THE RURAL VOICE, FEBRUARY 1983
market hog numbers down 10%, and
breeding inventory down 7% from the
previous Dec. Slaughter for the first
quarter of 1982 was expected to be
down 10 to 12%.
WATCH THE DEMAND SIDE, BUT
DON'T BE SCARED: Most analysts
seemed willing to predict profits
through all of 1983. for efficient, well
adjusted pork producers. "We have a
smaller pig crop (in U.S.) this winter,
which will be the hogs that come to
market next summer," said Larry Martin
of the University of Guelph. "Given that
last summer prices were extra -ordinarily
high, one would normally expect prices
to be higher next summer." But Martin
added that the danger in making high
predictions is, "we don't know what's
going to happen on the demand side,
and I think demand is a real problem at
the moment." He said farmers thinking
of expanding. should pay off the debts
they already owe before they expand.
INTEREST RATES: GOOD NEWS! Ca-
nadian bank primes are finally down to
the 12% mark, and the Farm Credit
Corporation, which used to adjust its
rates semi-annually. is now adjusting
rates on a monthly basis. FCC is
currently at 131/4%, with farmers in
trouble being eligible for a 2 year
discount of 4°i°. One Economist, Ray
Worseck. of H.G. Edwards & Sons in
St. Louis, told the annual meeting of
the American Farm Managers and Rural
Appraisers that the general trend in
interest rates is down. He said however,
that an uptick in the near term is
possible. Worseck based his long term
outlook on the view that inflation is
coming down. "The economy is so
weak, and liquidity so low, that we're
not going to see the inflationary psy-
chology re -appear." However. some
economists feel that a change in policy
by the U.S. Federal Reserve Bank to
allow some "reflation" could change the
trend later on.
BOOKS TO IMPROVE
MARKETING STRATEGIES
Following are some comments by
John DePutter on three books about
agricultural marketing. These books re-
present examples of the many informa-
tion sources which are available to
farmers wishing to build their know-
ledge of futures markets.
Marketing for Farmers. Edited by Gene A.
Futrell.
This book is a must, for farmers who
would like to understand American farm
markets from start to finish. Futrell is a
Professor of Economics at Iowa State
University. He not only gives insight into
how futures markets work; he also traces