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’98 Prospects Good for Most of Ag

PULLMAN, Wash. — The coming year should be a generally good one for most segments of Washington’s agricultural industry, according to the 1998 Pacific Northwest Agricultural Situation and Outlook Report, which will be published Jan. 2.

A notable exception will be wheat.

The economic report is the product of 44 agricultural economists and other authorities at Washington State University, Oregon State University, University of Idaho and private industry.

Here’s what they have to say about various components of Washington’s $5.7 billion-a-year agricultural economy.

WHEAT

For the second year in a row, world wheat production was expected to exceed consumption in the 1996/1997 market year and U.S. wheat growers should expect lower prices in the coming year.

So forecasts Jon Newkirk, WSU extension economist, Ritzville. Newkirk said year-ending stocks, swollen by the world’s first 600-million-metric-ton harvest, are expected to climb to 22 percent of consumption, up from 18.8 percent a year earlier.

The carryover of U.S. stocks will be even greater, nearly doubling from 15.3 percent of the crop to 27.2 percent. Newkirk said this is the highest since 1990/1991 when they were a disastrous 35.7 percent.

Acreage for the U.S. 1998 winter wheat crop is expected to be about the same as last year. Growing conditions appear good.

The supply of white wheat, the most common type grown in the Northwest, is expected to be about 67 million bushels on May 31, 1998. That would be 12 million bushels more than two years earlier.

Domestic use of soft white wheat retreated in 1997 as increased production and improved quality of soft red wheats pushed it back out of domestic soft wheat milling blends. When supplies of high quality soft red wheats were inadequate a year earlier, millers had substituted some soft white wheat .

Newkirk expects a flat international market, but notes that major importers engage in hand-to-mouth buying and the current high rate of consumption largely depends on high production.

Widespread, adverse growing conditions could send prices up. Wheat is a $739-million-a-year business in Washington, making it the state’s third most valuable commodity.

APPLES

The 1997 Northwest apple crop was down about six percent, at 130.6 million bushels. Tom Schotzko, WSU agricultural economist, said this should indicate higher prices, but he doesn’t think they will move up as much as one might expect from the smaller crop.

The Northwest supply is expected to be down about 10 percent. On average, 1998 prices should be about 15 percent above the same time a year earlier.

Schotzko said five factors will dampen rising prices:

— Early season prices were held down by carryover from a large 1996 crop. Many growers delayed harvest this fall to improve fruit size and quality. The industry is moving this high-quality fruit in larger than normal volumes.

— There is a shortage of trucks to transport fruit during the early season. This was caused by nonagricultural firms switching from rail to truck transportation because of problems in the rail system.

— Economic turmoil is disrupting Pacific Rim markets, which will buy less fruit in 1998.

— The 101 percent tariff currently being assessed by Mexico will reduce sales.

Apples are Washington’s leading agricultural commodity, bringing orchardists some $943 million a year.

DAIRY

The nation’s good economic health bodes well for the dairy industry. Gayle Willett, WSU agricultural economist, says the U.S. Department of Agriculture is projecting a 0.9 percent increase in commercial use of dairy products in 1998. “As we move into 1998, look for a sharp decline in butter prices along with a more moderate drop in cheese prices,” Willett says.

After peaking in September 1996 at a record high, milk prices plummeted 25 percent to 30 percent by mid-1997. Producers face continued high hay prices through the coming spring. Increased hay acreage and good weather will moderate prices dairymen pay when the new crop comes on the market.

A court ruling and El Nino make the outlook for milk prices uncertain for 1998. Willett said a federal judge’s ruling in a Minnesota suit about equity in federal marketing orders has the potential to lower prices Northwest producers receive by 90 cents a hundredweight. A hundredweight is about 11.6 gallons.

Although most analysts suggest price increases of 20-cents to 50-cents per hundredweight in 1998, Willett is skeptical. He cautions dairymen to keep a close eye on price developments.

Dairying is Washington’s second largest agricultural industry, accounting for $792 million in sales a year.

MEAT ANIMALS

The economic health of the Northwest’s meat producers is improving after two years of very low prices. 1998 should be a much better year than 1997, says Wilson Gray, UI, Twin Falls.

Liquidation of beef herds is expected to continue in 1998, but at a more moderate pace. In 1997 beef producers reduced cattle numbers by 3 percent. They are expected to cut numbers another 1 percent to 2.5 percent in 1998.

He expects beef production to decline at least through 1999. Declining beef supplies will push up prices, but larger supplies of pork and poultry will dampen increases.

POTATOES

A smaller crop, reduced U.S. supplies and strong demand for potato flakes will boost potato prices in 1998. Joe Guenthner, UI agricultural economist, says Northwest farmers grew 7 percent fewer potatoes in 1997. This was largely because they planted fewer acres after low prices in 1996.

Northwest farmers harvested 589,500 acres of potatoes in 1997. Washington accounted for 148,000 of those acres. Despite weather and pest problems, growers in all three Northwest states produced record-high yields, Guenthner said.

Washington growers, who produce the world’s highest yields, set a new record of 595 hundredweight per acre.

Although exports continue to grow, the demand for frozen processed potatoes in 1998 isn’t bright, Guenthner said. Increased competition from Canada is prompting some U.S. processors to cut back. Guenthner said JR Simplot plans to process 10 million hundredweight fewer potatoes in Idaho during the 1997-1998 season.

Demand for dehydrated potatoes, however, is strong. Guenthner said the snack food market is increasing purchases of potato flakes for snack products such as Baked Lays and Pringles.

The Northwest is the main source of potato flakes.

Growers who sell in the fresh market can expect higher prices than in 1997 throughout the entire marketing season, Guenthner says. Northwest prices in the fall were $3.50 – $5.50 per hundredweight, double what growers received a year earlier.

“Late in the marketing season, prices may be five times higher than year-earlier prices, which were often in the $1.00 – $1.50 range,” Guenthner reported.

Growers can produce potatoes and store them for five months for about $5 per hundredweight. Potatoes are Washington’s fourth most valuable commodity at $451 million a year.

HAY

Hay prices were $5 – $25 a ton higher during the 1997 marketing season and should remain strong through the 1997-1998 feeding season, reports Bill Ford, WSU Franklin County extension agent. Rain damage during first and late cuttings, increased demand and unchanged hay acreage strengthened prices for good-quality hay in 1997.

Increased acreage is likely in 1998, which may pull prices down during the 1998- 1999 marketing year, Ford said. Hay production is a $373 million a year industry, sixth largest in Washington’s agricultural sector.

GRAPES

Washington harvested its second largest Concord crop in 1997 and received $250 per ton, the highest price ever.

Ray Folwell, WSU agricultural economist, said the high price in the face of such a large harvest was due to tight supplies. “There was less than three months’ supply as the harvest approached and it takes three months before the current production is suitable for use,” Folwell said.

Washington harvested 65,000 tons to 70,000 tons of wine grapes in 1997, almost twice the 1996 crop. The average price dropped $50 a ton, to about $900.

Folwell reported Washington has increased plantings by 30 percent or more since 1994. The state now has about 16,540 acres of wine grape vineyards.

Grapes brought Washington’s viticulturists some $57 million in 1996, the last year for which data are available.

PROCESSED VEGETABLES

During the past 20 years per capita consumption of both fresh and frozen vegetables have increased by more than 40 percent while consumption of canned vegetables has fallen nearly 20 percent, according to Larry Burt, OSU agricultural economist.

Burt said wholesale prices for canned peas were about the same or slightly lower in 1997 and should remain about the same through the end of the market year. Prices for frozen green peas moved slightly higher early in the 1997-1998 marketing year and are expected to hold.

Wholesale prices for frozen snap beans were tending slightly higher at the beginning of the 1997-1998 market year and prices are expected to remain slightly ahead of year-earlier levels through the end of the market year, Burt said.

Demand for canned corn is weak and wholesale prices aren’t expected to increase throughout 1997-1998. Prices for frozen sweet corn are expected to remain where they are, or to increase only slightly.

GRASS SEED

Larry Lev, OSU agricultural economist, reports both grass seed producers and seed companies prospered in 1997 and the industry is cautiously optimistic about 1998.

“Strong new home sales and the prolonged expansion of the golf industry (an average of 425 new courses a year over the last five years) has allowed the PNW grass seed industry to sell ever increasing quantities of grass seeds,” Lev said.

“Past experience has demonstrated that prices will not remain at these high levels indefinitely. At some point, a general downturn in the economy and/or a too- great expansion of supply will force prices down. Near term, the greatest concern centers on oversupplying the fall fescue market. Across all grass seeds, uncertified and off-quality seeds are having the most difficult time in the marketplace.

The 1998 PNW Agricultural Situation and Outlook Report is the product of 44 agricultural economists and other authorities at Washington State University, Oregon State University, University of Idaho and private industry. It will be published Jan. 2 in the “Capital Press.”

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