After difficult years in both 1998 and 1999, some sectors of the Indiana agricultural economy are expected to improve in 2000. The livestock sector, led by stronger prices for both cattle and hogs will have favorable profits. Diary however, will weaken. Income from crops could improve in 2000. Yields in 1999 were depressed with corn about 3 bushels below trend and soybeans 4 bushels below. Corn prices will move back above loan levels which could further help improve incomes, but both wheat and soybeans will see prices stay below loans. Government financial assistance is also expected to remain strong. In sum, farm incomes are expected to show some increase over 1999.

Trade

World agricultural markets continued to be plagued by large food supplies and the lingering effects of Asian financial problems. Agri cultural exports by the United States are forecast at $49.5 billion, just $500 million above last fiscal year. Imports of agricultural commodities are forecast at $38 billion compared to $37.5 billion last year. Prices for major agricultural commodities are expected to remain weak.

Although the United States and China agreed to a trade deal which opens the Chinese market for agricultural goods and paves the way for China to join the WTO, that deal has not been approved by Congress. Hanging over U.S. agricultural trade is the rising resistance to GMO products.

Policy

Despite a record $22 billion dollars in government expenditures for agriculture this last year, more government assistance s likely on tap for 2000. With poor economic conditions being projected for agriculture, even the most conservative of economists expects the government to step in with emergency assistance for the third consecutive year. Recent projections have farm income projected at $40.8 billion dollars for 2000, which is down nearly $8 billion dol-lars from last year. Couple this with coming elections and it appears there is at least a 75% chance of some form of additional government income assistance in the coming year.

Improved Prospects for Corn, but Not Soybeans

The corn market is expected to have improving prices in 2000. Corn use will reach record levels for the 1999-2000 marketing year at 9.5 billion bushels. Domestic use is very favorable with strong use for feed and ethanol production. Exports are up11% in early March. Carryover stocks will likely drop to somewhat over 1.6 billion bushels by the end of August 2000.

Corn prices are expected to recover somewhat into the spring with central Indiana prices in the $2.00 to $2.20 level. The price direction into the summer will be greatly influenced by weather conditions with the possibility that prices could move back under $2.00 with favor-able weather and with large volumes of corn coming off loan in the summer.

With normal weather, this years crop is expected to be 9.4 billion bushels which will be about 300 mil-lion bushels below use, and thus carryover stocks could drop to about 1.3-1.4 billion bushels by August 2001. Given a normal weather situation, cash prices at harvest are expected to be in the $1.75 to $1.95 range in central Indiana, with LDP’s ranging from 0 to 20 cents per bushel. Spring new-crop forward pricing should be considered with cash contract prices in the $2.30 to$2.40 range. Indiana prices (with normal weather) for the 2000 crop are expected to average about $2.20 per bushel, 20 cents higher than the 1999 crop.

Dry subsoil conditions remain prevalent throughout the Midwest this spring and increase the odds for reductions in yields.

While corn is expected to trade above loan levels for much of the year, soybean prices will likely stay below loan. Planted acreage is expected to reach new records this year as the government soybean loan tends to be more favorable than simi-lar guarantees for corn. Old crop soy-beans are expected to trade in a range of $4.75 to $5.10 this spring. Summer prices will be highly influenced by summer weather conditions with favorable growing weather pushing soybean prices, perhaps back to the $4.50 level. Alternatively, weather concerns could cause prices to move higher into the sum-mer. As with corn, there is great uncertainty for those who store into mid-to-late summer.

With record soybean acreage and normal summer weather, the 2000 harvest will exceed 2.8 billion bushels and result in growing carryout prospects, and lower prices. With normal weather look for harvest prices in central Indiana to be in the$4.50 to $4.75 range with LDP’s of 70 to 95 cents per bushel. In general, most will not want to forward price new-crop soybeans below the loan rate until spring and summer weather patterns become more clear.

Cattle Look Great, Hogs Back to Profits

Cattle prices are expected to strengthen throughout the year. Choice steer prices averaged $64 in 1999 and will surge to $70 this year. Feeder cattle and calf prices will also be strong. Steer calves (500-550 pounds) averaged about $86 in 1999, but will reach near $1 per pound in 2000. The strong prices are a result of 2% to 3% lower supplies and strong domestic demand as a result of the favorable general economy and the popular “high protein diet.”

Finished cattle prices are expected to peak in the early spring in the low $70s. Prices will move slightly lower in the summer, perhaps back into the higher $60s, with the strongest prices of the year coming in the fall with $72 to $74 prices possible.

At least two factors will pose threats to a favorable profit year for producers. The first is the prospect of continued drought in Texas and the Southwest. The second threat to the cattle industry is higher interest rates. Higher interest rates will cut into cattle feeding margins and result in lower bids for feeder cattle and calves as well as slowing eco-nomic growth.

Hog prices should average $42 to $44 for the year, a sharp increase from the $34 of 1999. Difficult financial times in 1998 and 1999 have resulted in the breeding herd being cut 7%, with 4% fewer market hogs. Prices are expected to move sharply higher in late-April and May reaching $45 to $46 in the summer. Only modest declines are expected in the fall, with prices in the $42 to $44 range. The breeding herd is not expected to move back toward expansion until late in the year. If so, this means that pork supplies will continue to move lower into the

first-half of 2001.

The greatest threat to hog producer profits for 2000 seem to be dry weather concerns and the possibility of higher feed prices. For this reason, producers should consider covering a portion of their feeding needs by buying corn and meal futures or call options.

Land Values and Cash Rents

The June 1999 Purdue Land Value Survey indicated that for much of the state, the steady increase in land values had paused. On a state wide basis, top, average, and poor land was estimated to have a value of $2,643, $2,092, and $1,546, respectively. Compared to year-earlier values, this was a decline of 2.7%, 2.9%, and 5.3%, respectively for top, average, and poor land.

A land value survey conducted by the Federal Reserve Bank of Chicago reported steady increased value in Indiana during the last quarter of 1999.

For 2000, interest rates will likely rise more, putting downward pressure on land values. In addition, soy-bean and wheat prices will likely stay below loan values. Some potential income improvement can be expended from corn as well as hogs and cattle. Thus land values are expected to remain fairly steady to down somewhat.

On a state wide basis, cash rent for top, average, and poor quality farmland was estimated to be $138,$110, and $84 per acre, respectively. Compared to year-earlier values, this was a decline of 1.4%, 1.8%, and 2.3%, respectively for top, average, and poor quality farmland.

The current economic situation should continue to put downward pressure on cash rents. However, there also continues to be strong competition for rented farmland. While many tenants have approached landowners about reducing cash rents, reaching such an agreement is often difficult. It is expected that cash rents for 2000 will be 0% – 3% less than rents in 1999.