MSU is an Affirmative Action, Equal Opportunity Institution. MSU Extension programs and materials are open to all without regard to race, color, national origin, sex, handicap, age or religion.

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MSU is an Affirmative Action, Equal Opportunity
Institution. MSU Extension programs and materials
are open to all without regard to race, color,
national origin, sex, handicap, age or
religion. Issued in furtherance of Cooperative
Extension work in agriculture and home economic,
acts of May 8, and June 30, 1914, in cooperation
with U.S. Department of Agriculture. Arlen
Leholm, director, MSU Extension, Michigan State
University, E. Lansing, MI 48824
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External Forces Impacting Your Industry and the
Global Economy --Current Status and Future
Direction
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Strategic Planning Pyramid
Internal
External
Analysis
Analysis
Tactics
Short-term Goals
Long-term Goals
Mission
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External Analysis

• External Analysis
• Events beyond the farm gate have a tremendous
  financial impact upon your farm business.
• Let us take a brief look at the General Economic
  Situation --

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By Some Accounts, Things Look Great . . .

• These are the best economic times in living
  memory.
• Robert Shapiro
• U.S. Commerce Department Undersecretary
• We broke the record for the longest peacetime
  expansion in American history.
• Lansing State Journal
• pg. 5B, Jan. 30, 1999

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Interest Rates Are Low!
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Economic Growth is Moderate
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Inflation is Low!
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By Other Accounts, Things May Not Look So Great .
. .

• Record low prices in hog market
• Continued depressed price for cattle
• Low crop prices
• Tough times for cherry and apple producers
• Lingering uncertainty about the Asian financial
  crisis
• Uncertainty as to the future of U.S. farm policy

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U.S. Agricultural Trade Balance is declining!

• U.S. Agricultural Exports and Trade Balance
• 1994 1995 1996 1997 1998 1999 proj
• (Nov. 98)
• Value Billion dollars
• Exports 43.9 54.6 59.8 57.3 53.6 50.5
• Imports 26.6 29.9 32.6 35.8 37.0 38.5
• Balance 17.3 24.7 27.2 21.5 16.6 12.0
• Volume Million metric tons
• Exports 127.5 169.7 158.4 147.3 142.0 148.7 149.8
• Data reflect years ending Sept. 30 (source USDA
  WAO Board,
• Economic Research Service, Foreign Agricultural
  Service)

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Trade Balance Impacted by

• Asian Flu. . . Demand is down
• Brazilian Currency Devaluation
• Makes U.S. exports relatively more expensive

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Three Key Elements of Freedom to Farm

• Target prices replaced with fixed payments
• Production Flexibility Contract payments (PFC)
• Setasides and base rules eliminated
• Minimal safety net provided by loan rates

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CHANGES IN HARVESTED ACREAGE UNDER FTF
Million Acres
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CHANGES IN MI HARVESTED ACREAGE UNDER FTF
Thousand Acres
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Planting Flexibility

• Changes in acreage
• US MI
• Corn 14 -8
• Wheat -3 -8
• Soybeans 16 26
• Cotton -34 NA
• Rice 3 NA

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Income Protection

• PFC Payments
• Fixed and declining
• Less protection than target prices
• Loan Deficiency Payments
• Protection for entire crop

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PROJECTED CORN PRICE AND PAYMENTS
Dollars per Bushel
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PROJECTED WHEAT PRICE AND PAYMENTS
Dollars per Bushel
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Policy Consistency

• Timing of payments
• A factor in cash rent/land price inflation?
• Increasing planning uncertainty
• Can we expect changes in payments?

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Dr. Daves Predictions for 1999

• Congress will adjust PFC payments by at least 50
  percent
• Fast track will not pass Congress
• Loan rates will not be changed until 2000
• 1999 begins a 4-year debate on farm policy
• In 2002 and beyond - all alternatives are on the
  table!

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Outlook for U.S. Commodities

• By
• Jim Hilker, Ph.D. and John Ferris, Ph.D.
• MSU Department of Agricultural Economics

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Table 1 Corn ProductionUSDA SUPPLY/DEMAND
BALANCE SHEET (million acres) - March 3, 1999
1995-96 1996-97 Estimated
Projected Hilker 1997-98
1998-99 1999-Y2K Acres set aside
6.2 0.0 0.0 0.0
0.0 Acres Planted 71.2
79.5 79.5 80.2 79.2 Acres Harvested
65.0 73.1 72.7 72.6 72.4
Bu./ 113.5 127.1 126.7
134.4 131.4 Harvested acre
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Table 1 Corn UseUSDA SUPPLY/DEMAND BALANCE
SHEET (million bushels) - March 3, 1999
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Table 2 Wheat ProductionUSDA SUPPLY/DEMAND
BALANCE SHEET (million acres) - March 3, 1999
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Table 2 Wheat UseUSDA SUPPLY/DEMAND BALANCE
SHEET FOR (million bushels) - March 3, 1999
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Table 3 Soybean ProductionUSDA SUPPLY/DEMAND
BALANCE SHEET (million acres) - March, 1999
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Table 3 Soybean UseUSDA SUPPLY/DEMAND BALANCE
SHEET - March 3, 1999
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Low Grain and Soybean Prices

• Translates into
• Low Energy and Protein Costs for the Livestock
  Sector

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Milk Price History Projection
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Livestock Price History Projection