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Farmers face increasing cost-price squeeze in 2006

U.S. farmers face an increasing cost-price squeeze in the
year ahead, said economists from the University of Missouri-Columbia. Farm production expenses that increased $28 billion in the past three years will jump another $7 billion in 2006.

Rising energy prices, including fuel and fertilizer, made up $10 billion of the increase since 2002.

"Costs also increased substantially for feed, purchased livestock, seed, repairs and interest payments," according to a 10-year baseline report released to the U.S. Congress by the Food and Agricultural Policy Research Institute (FAPRI).

FAPRI shows net farm income falling by $16.8 billion in 2006 from 2005. Increased costs and falling crop and livestock receipts squeeze farm profits.

Further declines are projected for 2007, with a slight upturn in income through 2015. Net farm income is projected at $56 billion in 2006, $52 billion in 2007 and $58 billion by baseline end.

Farmers face declining payments from federal farm programs throughout the baseline. Payments peaked at $23 billion in 2005 and are projected at $13 billion in 2015.

The FAPRI baseline will be used to analyze any changes in the Farm Bill to be rewritten by Congress by 2007.

The baseline contains good news for grocery shoppers. The price of food increases at a slower rate of inflation than the Consumer Price Index (CPI). Food inflation grew at 2.4 percent in 2005, with projected
increases of 2 percent or less each year in the 10-year outlook.

Prices of meat contribute most to slowing the CPI for food.

U.S. farmers face an increasing cost-price squeeze in the year ahead, said economists from the University of Missouri-Columbia. Farm production expenses that increased $28 billion in the past three years will jump another $7 billion in 2006.

In the crop outlook, record high stockpiles of corn, soybeans and wheat keep a lid on crop prices this year, said Pat Westhoff, FAPRI analyst. Back-to-back record soybean yields in 2004 and 2005 helped replenish world soybean supplies.

There will be more cattle to eat byproducts as the U.S. cattle herd expands, stimulated by higher beef prices since 2003. FAPRI projects a peak of more than 103 million head by 2012.

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