
AGRICULTURAL OUTLOOK -- SUMMARY                               August 20, 1998
September 1998, AO-254
              Approved by the World Agricultural Outlook Board
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This SUMMARY is published by the Economic Research Service, U.S. Department
of Agriculture, Washington, DC 20036-5831.  The complete text of the 
report will be available within 3 working days following this summary 
release.    
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Record 1997 Net Cash Income Helps Farmers Face Market Downturn

     U.S. agriculture is producing voluminous output in 1998, despite
severe drought in portions of the Plains and the South.  However, expanding
field crop and meat supplies coincide with export demand that is lackluster
compared with recent years.  As a result, U.S. farm prices and income will
drop sharply following generally strong farm financial performance in 1996
and 1997.  Many farmers are financially stressed, particularly those in the
Plains and the South and those with little off-farm income.  But most farm
businesses are financially sound as the U.S. agricultural sector enters
this market downturn, according to USDA's Economic Research Service.  Net
farm income has been well above average in recent years and balance sheets
are relatively strong.  In addition, farm credit availability is strong, as
are financial conditions of most farm lenders.  Mitch Morehart (202) 
694-5581; morehart@econ.ag.gov

     Current ERS analysis of the U.S. farm economy is based on the 1997
Agricultural Resource Management Study (ARMS).  Data collected through the
ARMS are the primary source of information  about agricultural resource
use, costs of production, the environment, the structure and financial
condition of farm businesses, and the economic well-being of farm operator
households.  The data are specific to farming operations by size, region,
commodity speciality, and other structural parameters, including operator
demographics.  Bob Reinsel (202) 694-5506; rreinsel@econ.ag.gov

 U.S.-World Cotton Price Gap Has Stretched

          The U.S. and foreign cotton sectors face divergent circumstances in
the 1998 season, and the marketing year (August-July) has begun with an
unusually wide gap between U.S. and world prices.  Adverse weather, the
Asian crisis, and U.S. and foreign government policies on cotton are among
the factors affecting U.S. production and exports in 1998/99.

          The 1998/99 U.S. outlook continues the trend toward smaller acreage
planted to cotton, as net returns at planting time for some competing crops
looked more favorable than for cotton in many areas of the Cotton Belt.
USDA's August Crop Production report projects this season's total output at
14.3 million bales, well below the 19-million-bale crops of the past 2
years.  With U.S. stocks shrinking and with foreign stocks outside China
expected to grow, the price premium for U.S. over foreign cotton has
jumped.  Government payments to encourage domestic use and exports of U.S.
cotton--under Step 2 of the cotton marketing loan program--have soared, and
funds are likely to be depleted ahead of expectations.  Leslie Meyer (202)
694-5307; lmeyer@econ.ag.gov

Soybean Prices To Plunge on Big World Harvests

          Greater world supplies of soybeans and weaker demand have combined to
produce a dramatic market turnabout this year.  U.S. farmers enjoyed record
sales of soybeans in 1997/98, thanks to a bumper harvest and favorable
prices.  In 1998, U.S. soybean farmers will produce their second
consecutive record harvest--at 2.83 billion bushels, this year's crop will
be nearly 4 percent larger than last year's.  But the 1998/99 outlook for
marketing has greatly changed.  Global soybean ending stocks are projected
to be twice as high in 1998/99 as their diminished level 2 years ago. 
Soybean prices at the farm level are forecast to slide from the 1997/98
average of $6.45 per bushel to $4.85-$5.85 this season, the lowest since
1986/87.  Mark Ash (202) 694-5289; mash@econ.ag.gov

Dairy Markets Unsettled, Prices Erratic

          Strong economic growth continues to bolster demand for dairy
products,
although the effects have been uneven.  Butter and cheese prices moved
sharply higher over the summer, while nonfat dry milk remained close to the
Federal support price.  Strong milkfat demand, moderate skim solids demand,
and sluggish milk production are expected to keep dairy markets unsettled
and prices erratic during the remainder of 1998.  Dairy prices are not
likely to stabilize until substantial production gains are posted. 
Expansion in milk output may start accelerating by late 1998 or early 1999
--if the recent declines in concentrate feed prices are combined with
adequate supplies of dairy-quality forages.  Jim Miller (202) 694-5184;
jjmiller@econ.ag.gov 
 
Regional Trade Agreements & U.S. Agriculture 
 
          Regional trade agreements (RTA's) have become a fixture in the global
trade arena.  In the Western Hemisphere, about 40 regional trade pacts are
currently in force, with at least a dozen others under negotiation.  RTA's
have generated intense debate, with opponents arguing that these trade
pacts will divert trade from more efficient nonmember producing countries,
while advocates contend that RTA's can serve as building blocks for further
multilateral trade liberalization.  
          USDA's analysis of the longrun impacts of four major RTA's (the North
American Free Trade Agreement, an expanded European Union, the Asia Pacific
Economic Cooperation forum, and the potential Free Trade Area of the
Americas) indicates that, on balance, they will generate more trade
economywide than they divert. In agriculture, RTA's have both trade-creating 
and trade-diverting effects, but trade creation dominates in most
RTA's.  While the U.S., as a global trader with diverse partners, can gain
potentially more from global free trade than from RTA's, the commitments
made within RTA's are expected to exceed those from the Uruguay Round's
multilateral agreements, and joint pursuit of RTA's and multilateralism can
benefit U.S. agriculture. Mary E. Burfisher (202) 694-5268;
burfisher@econ.ag.gov

 
Printed copies of Agricultural Outlook will be available in about 2 weeks. 
For further information call Dennis Shields  (202) 694-5331.  

The full text of the magazine will be available electronically within 2
working days at  http://usda.mannlib.cornell.edu/reports/erssor/economics/
ao-bb/.   

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