State agriculture receipts projected to hit record highs: Economists at UK note '07 challenges (Gregory A. Hall, The Courier-Journal)

Despite a spring freeze and summer drought, University of Kentucky economists projected yesterday that Kentucky farmers' cash receipts will total a record $4.22 billion this year and rise to $4.294 billion next year.

"We had some very, very challenging growing conditions," said Will Snell, one of the UK agricultural economists who released the numbers during the Kentucky Farm Bureau convention in Louisville.

After the freeze around Easter, "we moved into probably the toughest drought conditions we've ever had in the history of Kentucky agriculture, which had devastating impacts … on pastures and certainly impacted many of our yields," Snell said.

Nonetheless, high prices and increased acreages for some crops are helping push cash receipts beyond the 2004 record of $4.1 billion, he said. "I think the potential is for cash receipts to steadily increase."

But the same isn't true for farmers' income after expenses, which Snell said has peaked, despite remaining strong by historical standards. The federal buyout that ended the tobacco-price-support system helped set the 2005 record of $2.1 billion.

Government payments will continue to decrease, and "I don't see anything on the horizon that's really going to pull down production expenses. Labor costs are going to go up, feed and fuel," Snell said.

But overall, the economists painted a largely positive picture for agriculture both in Kentucky and nationally.

While the overall national economy is sluggish with talk of a possible recession, Snell said the agricultural outlook is much better with relatively high prices and record receipts, income and exports.

Livestock receipts in Kentucky increased almost 11 percent as horses, poultry and cattle combined accounted for almost two-thirds of projected cash receipts this year, according to the projections. Prices are strong, and more horses and cattle are being sold.

Livestock economist Lee Meyer said cattle sales were up 45 percent to 50 percent from June to October as farmers sold cattle because of the drought, boosting cattle revenues. Kentucky is the largest beef state east of the Mississippi River.

"We pushed a bunch of cattle to market that would have gone to market next year and probably had higher revenues this year with the pretty good prices we had," Meyer said. "But we're going to pay the penalty for that next year in terms of a drop in cattle revenues then."

Meyer said he would be very optimistic about the long run except for the possibility of higher feed costs, driven by ethanol demand and exports.

"Feed remains a wild card," he said.

Next year's projected growth is based on a 12 percent increase for crops with a return to normal growing conditions. Livestock receipts are expected to dip 2.4 percent.

Corn is projected as this year's leading cash crop, but its 16 percent production increase resulted from more being grown rather than better yields, economist Kenny Burdine said. The demand for ethanol and other alternative fuels helped spur the increased corn acreage and the decreased soybean planting.

Soybean plantings are expected to increase next year as a result of this year's tighter supply and higher demand, Burdine said. With tobacco, once the king of Kentucky's cash crops and now projected second, Snell said prices are down 5 to 10 cents a pound despite hopes that heavy demand would lead tobacco companies to overlook drought-related curing difficulties.

Although tobacco companies may want more tobacco grown, they'll have to offer better pricing to get it, he said.