OREGON STATE UNIVERSITY

1999 could bring slowdown to Northwest agriculture

01/29/1999

CORVALLIS - Oregon's thriving agricultural economy could see a slowdown in 1999, but a sustained recession is unlikely, according to forecasts of economists and Extension agents released in "The 1999 Pacific Northwest Agricultural Situation and Outlook."

The annual report is compiled cooperatively by the Pacific Northwest's three Land Grant universities: Oregon State University, the University of Idaho and Washington State University. Available this year through the Internet, it provides information for agricultural interests, investors and others tracking market trends.

Extension specialists from the three universities analyzed commodities and economic trends to map a picture of the highlights of 1998 and foreshadow trends in the new year that will have an impact on the Northwest's primary commodities. Some forecast highlights for 1999:

Grass seed sales could slow as large stores create an oversupply that depresses prices, according to Larry Lev, an Extension economist at OSU.

Most lumber markets will see a downturn if predictions of a 5.6 percent drop in single-family housing construction prove correct, said Charley McKetta, a forestry economist at Idaho.

The Northwest's dairy boom will come to an end in the second half of 1999 as the unusual combination of high milk prices and record low feed costs ends, predicts Roger Cady, an Extension dairy specialist from WSU.

Overall, Oregon's agricultural economy could see a slowdown in 1999, but not a recession, according to Paul Warner, Oregon's state economist from the Office of Economic Analysis in Salem.

"Deteriorating foreign trade, softer corporate earnings and eventually a slowdown in consumer spending all point toward a weaker 1999," Warner said. "Nevertheless, the U.S. probably will avoid recession for another year."

If so, the nation will continue into the eighth year of an economic expansion that began in March 1991 and is one of the longest in U.S. history. The expansion has favored the economies of both the region and Oregon.

Some Oregon commodities either held their own or had a modest expansion in 1998, depending on their dependence on the troubled Asian and Latin American economies.

For instance, strong domestic consumption raised milk prices. At the same time, low feed costs created production conditions that made 1998 one of the dairy industry's most profitable years.

The economic crisis in Asian and Latin American markets had a strong impact on wheat and coarse grain markets, which reached some of the lowest levels of the 1990s.

To give a clearer view of how Oregon's economy fits into the world trade picture, the Situation and Outlook report includes chapters such as: "Asian Economic Flu: Implications for the Pacific Northwest in 1999" and "Five Years into NAFTA: Effects on U.S. Agricultural Trade."

Weakness in Asian markets has a significant impact on the Pacific Northwest's economy. The region relies heavily on its Asian trading partners, accounting for more than 14 percent of the nation's trade with Asia.

Final trade figures for 1998 are expected to be down by almost 16 percent due to the economic crises in Korea, China, Indonesia, Russia, Taiwan, Thailand, the Philippines and other countries.

The report includes background on recent trends in Oregon and regional commodity markets for the past few years, and how those are likely to play out in 1999:

 

  • Grass seed

    Oregon grass seed acreage continues to grow, thriving throughout 1998 in step with a robust economy that saw increased home and golf course construction. Annual ryegrass prices remained strong in 1998 at nearly 25 cents a pound. Perennial ryegrass prices were just under 60 cents a pound while tall fescue was 55 cents a pound.

    However, a slowdown is forecast for 1999 as stored grass seed is expected to drive down prices. Furthermore, weak prices for alternative crops continued to encourage growers to plant more ryegrass, further increasing the supply. Grass seed companies are asking growers to produce only top quality seed to increase the market attractiveness of Oregon grass seed.

    The industry continued a three-year consolidation trend as Nevada-based Agri-Bio Tech continued to purchase smaller grass seed companies in the Willamette Valley.

     

  • Forest products

    The West is predicted to lead a national slow-down in housing starts this year. Overall, observers see some contradictory trends. For example, despite increased construction that should have increased lumber demand and thus lumber prices, prices continue to fall due to ailing Asian markets that gutted North American wood exports. Yet despite falling prices, western lumber production didn't change.

    Lumber and sawlog price declines should speed up this year, although pulpwood prices may rise, the University of Idaho's Charley McKetta predicted. Higher grades of lumber are expected to become increasingly expensive as large logs become rarer. When lumber production starts to follow declining lumber prices down, regional chip and pulpwood prices should jump.

    Timberland owners are advised to build up inventories while targeting long-run markets for larger, higher-quality logs, and put off tree harvests until average wood prices increase with the next business cycle. Reinvesting stock market profits into thinning, fertilizing and pruning could see a bigger yield of large trees that could lead to hefty returns at harvest.

     

  • Grapes

    With a little assist from nature, Oregon's wine grape crop could see a rebound from 1998, when a wet, cold spring saw a poor fruit set and a 30-percent drop in grape production. Horticultural professor Ray Folwell of WSU predicts the crop will rebound to 20,000 tons, a vast improvement over the 13,000-ton production in 1998. Folwell said the price outlook will be good in the premium wine categories of Pinot Noir and Pinot Gris, for which Oregon is best known.

     

  • Dairy

    The Pacific Northwest's dairy industry was one of the few commodities not hit hard by the Asian economic situation, but the second half of 1999 could see an end to what has been a dairy boom, said dairy specialist Cady. A national pricing structure and a 95 percent domestic market for milk have insulated this industry from the international economic storms that rocked other Northwest commodities.

    The Basic Price Formula, a measure of the overall national farmgate price for milk, saw two record months in October and November of 1998 that smashed records set in 1996. Oregon's dairy industry saw little change in either the number of cows or production of dairy goods. However, several indications hint that the cycle Cady refers to as "boom and boom" may be interrupted in 1999.

    First, the combination of high milk prices and low feed prices is likely to end. Further, Cady predicts an increase in the dairy cow population because of high milk prices and low beef prices, leading to an increase in the supply of milk and decreases in price.

     

  • Wheat and feed grain

    How the world's grain producers respond to much lower grain prices and the vagaries of weather are the key factors for the 1999 wheat and feed grain crops. But after three years of near-record production, the law of averages suggests that declines in world wheat production may hold, thus leading to modest price increases for the crop for 1999 into 2000.

    The 1998-99 world wheat crop was the third-largest in history, sending prices for wheat and coarse grains to some of the lowest levels in the 1990s, said agricultural economist Larry Markus of Idaho.

    The 1998 U.S. wheat crop of approximately 2.557 billion bushels was slightly larger than the 1997 crop.

    Wheat price forecasts for the remainder of the marketing year suggest average-to-slightly-below-average seasonal increases. This projection is based on the assumption that U.S. wheat exports will reach projected levels.

    Harvested 1998 corn acreage in the United States was about 73.8 million acres, which produced a near-record yield of 133.3 bushels per acre, putting the estimated U.S. corn crop at 9.836 billion bushels, the second-largest on record. This near-record production of corn also is expected to decline after two big production years that saw falling prices.

     

  • Potatoes

    Little change is expected in prices or production for the Pacific Northwest's 1999 potato crop, said Joseph Guenthner, an Extension economist with UI. The national fall potato crop in 1998 was 429 million hundredweight (the term hundredweight refers to 100 pounds of potatoes). That represented an increase of 1.5 percent from 1997. Potato growers in the Northwest, who produce 60 percent of the nation's fall potato crop, cut production one percent.

    Oregon production dropped 4 percent to 26 million per hundredweight. And despite lower prices for the 1999 crop, growers increased the number of potato acres. Oregon potato farmers harvested 58,000 acres in 1998, an increase of 8 percent from the 53,500 acres in 1997.

    However, weather and pest problems reduced production. In Oregon, it dropped from 508 hundredweight an acre in 1997 to 450 hundredweight an acre for 1998. The lower yields were accompanied by lower quality in most Western potato regions. However, a hot market for frozen French fries used in the fast-food trade is expected to account for a 10 percent increase in worldwide demand.

    The demand for dehydrated potatoes is a key factor, but there the level is uncertain. Demand for certain types of baked, fat-free chips has fallen below expectations. Overall, little change is expected next year from the average open-market fresh potato price of about $4 a hundredweight that growers received in 1998.

     

  • Tree fruits

    Apple growers should see an invigorated market in 1999, as an aggressive sales campaign is expected to boost somewhat flat domestic consumption, said R. Thomas Schotzko, an Extension economist at WSU.

    An improving economic forecast for the Pacific Northwest's Mexican and Asian markets also could lead to a sales boost in 1999.

    Bumper crops of apples from the Pacific Northwest in 1998 boosted the nation's apple production, which had been hard-hit elsewhere by a harsh winter. Oregon's crop of 4.3 million bushels represented a 13-percent increase over 1997. The forecast is not all peachy, however. China's burgeoning apple-growing industry is expected to provide stiff competition.

    The 1998 winter pear crop was down 11 percent nationally from 1997, at about 14.6 million bushels. The Pacific Northwest grows virtually all of the nation's winter pear crop. The short crop increased early-season prices by about 9 percent. Cullage is reported to be higher and the proportion of number 1-grade fruit lower in some districts.

     

  • Beef cattle

    Higher production, lower consumption, overseas financial difficulties and competition from poultry and pork sales all are expected to lower production levels of beef in 1999, said Folwell. He predicts that commercial production of beef in the United States will be down more than 300 million pounds for each quarter in 1999, with the annual production of 24.3 billion pounds about 1.3 billion pounds less than 1998. The consumption of beef, which had been about 96.6 pounds per capita in 1998, is expected to drop to about 92 pounds.

     

  • Hogs and pigs

    Hog slaughter prices are at a 27-year low as the number of hogs exceeds the capacity of slaughterhouses to process them and as the lucrative Asian markets continue having financial troubles. However, the outlook for 1999 is for greater demand, greater consumption and more markets.

    Overall, the supply for 1998 was about 1.5 billion pounds ahead of 1997. Even higher levels of production are expected for the first three quarters of 1999, with a lesser increase in the last quarter.

    Prices are expected to improve as the number of hogs and the capacity of slaughterhouses equalizes somewhat, bringing prices into the low $30 per hundredweight range.

     

  • Sheep

    The sheep and lamb industry in the Pacific Northwest continues to parallel the national decline, Folwell said. And if the lambing rate stays the same as last year, it is expected that the national lamb slaughter will be below 1997. Despite the fewer number of ewes - projected to be 6-8 percent lower in January 1999 than the year before - increasing lamb imports and the lower prices of competing meats are expected to keep lamb prices down.

    Wool production mirrors this trend: The lower production of ewes means the nation is at a record small volume for wool production. As Asia and Europe are the largest consumers of U.S. wool, it is not expected that wool prices will show much of a rebound until those countries' economies do.

The "The 1999 Pacific Northwest Agricultural Situation and Outlook" report is available on-line at the following Web address:Note to Editors: This story originally contained a World Wide Web address. The characters used in Web addresses will not telecommunicate in our system. Please call us at 541-737-1436 for the address.