Bourbon Industry

UK economists predict a 5 percent drop in ag receipts in 2015

Chickens roam around their chicken house on the Schlosnagle farm in Pleasureville, Ky., on Friday, Sept. 17, 2010.
Chickens roam around their chicken house on the Schlosnagle farm in Pleasureville, Ky., on Friday, Sept. 17, 2010.

LOUISVILLE — It's back to the future for Kentucky farmers: After a record $6 billion in farm receipts this year, 2015 will look more like 2013.

At the annual agricultural economic forecast at the Kentucky Farm Bureau convention, University of Kentucky economists predicted a 5 percent drop in total agricultural receipts next year, back to the $5.7 billion that farmers reaped two years ago. That was a record at the time.

Despite the record levels of sales receipts, profitability varies widely depending on what farmers produce.

Looking out on a room of Kentucky farmers, Will Snell, a UK economist, said, "Those of you, all with smiles on your faces, I take it you're probably a livestock producer. And a few of those who have frowns on your faces, well, you're concerned about what's happened on the crop side, with the grain outlook."

He said 2014 looks pretty good still, but that economists have some concerns about 2015, particularly if grain prices continue to fall.

Corn prices have fallen by 50 percent, and overall crop prices are down about 30 percent, he said. At the other end of the spectrum, livestock prices are up about 30 percent, with calf prices almost doubling.

Looking at net income, Snell said Kentucky farmers can expect to see a 10 percent to 15 percent drop next year from the ending of tobacco buyout payments.

"That's a big driver on pulling that number down," Snell said.

Kentucky used to be a tobacco state, then a horse state. A few years ago, poultry became the state's top farm commodity and remains so for now, with an estimated $1.3 billion in receipts this year and an estimated $1.35 billion in 2015.

But beef — selling at record prices in the grocery stores and at auction — is climbing.

"Looking at these cattle numbers, what can you say but wow," UK economist Kenny Burdine said.

Cattle receipts are expected to top $1 billion this year and rise to nearly $1.2 billion in 2015, when there will be even fewer cattle and even greater demand.

Dairy also was a bright spot, Burdine said, with higher milk prices and lower feed costs.

As for horses, Burdine reminded farmers that he'd said that 2013 was the year the market turned the corner from the recession.

Thoroughbred sales at Keeneland jumped significantly to about $550 million that year, and he said that level has been sustained in 2014.

"That to me is encouraging," he said.

He mentioned one caveat: the drop in alfalfa hay production in Kentucky. "This is a challenge, as it has had an effect on hay prices."

Snell said the USDA changed the way it counts horse sales — switching from where the horse is sold to where the farm is located — and that has reduced the numbers that Kentucky posted on equine sales by as much as $400 million. The numbers for previous years have been adjusted downward, but Kentucky economists question whether the true economic impact is being accurately captured by the statistics available.

According to numbers released Thursday, horses would account for $400 million in Kentucky farm receipts for 2014, up slightly from $392 million for 2013. The UK forecast is for equine receipts to rise to $420 million in 2015.

The top crop in the state again in 2014 was soybeans, with about $1 billion in sales expected; next year, that is predicted to fall to $825 million in receipts, according to UK.

But soybeans are expected to stay in the lead, just ahead of corn. Corn receipts hit $880 million but are predicted to fall to $725 million next year.

UK experts weren't sure how much of an effect the billion-dollar bourbon boom could have on the state's grain farmers, but Snell said he thinks it could be good for them.

One area of concern: barrels. UK forestry expert Jeffery Springer said log prices are up across species, by more than 20 percent. But Kentucky distilleries must have white oak to make barrels. Demand will outstrip supply, Springer said.

"It isn't a crisis issue," he said, but it's worth monitoring as the demand continues to increase every year.

Agriculture Commissioner James Comer said at the Kentucky Farm Bureau annual meeting that the "state of Kentucky agriculture continues to be strong."

His department's KYProud marketing initiative has already resulted in increased visibility for farmers and bigger orders from Kroger, which earlier this year launched a locally sourced section in stores across the state, he said.

"They've already doubled their order," Comer said.

He credited the Agriculture Development Board, which financed the KYProud program with money from tobacco settlement funds.