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OPEC’s Move to Raise Oil Prices Could Affect U.S. Agricultural Forecast

December 26, 1986

WASHINGTON (AP) _ A decision by OPEC to force up the world price of oil by reducing daily production could alter some of the 1987 economic projections by the Agriculture Department, according to an agency economist.

The Organization of Petroleum Exporting Countries agreed last weekend to cut production by 7.6 percent to about 15.8 million barrels a day, the lowest ceiling in the cartel’s 26-year history, in order to fix prices at an average of $18 per barrel.

Some analysts say the plan could eliminate a world glut of oil in less than six months. That would give OPEC enormous influence over prices, which tumbled 50 percent over the past year to a range of $14 to $16 per barrel.

Gary Lucier of USDA’s Economic Research Service says the decline in world oil prices has been a major factor in a sharp reduction of farm production costs in the United States.

But if OPEC is successful in curbing production and boosting prices, the effect could bring a revision in 1987 farm income expectations.

″It could go lower, definitely,″ Lucier said in an interview. ″But it depends on how much prices go up and how quickly.″

Lucier said that if oil price increases are delayed or minimal until mid- year, most 1987 crops will have been planted. But even then, he said, higher oil prices would be felt later on, in 1988 for sure.

As it stands now, without an OPEC price increase, the figures for 1987 point to a further decline in farm production expenses. This year, those costs are down around $1.5 billion from 1985.

″The lower energy prices will likely have secondary impacts on farm expenses into 1987 as fertilizer prices fall and the overall inflation rate in the economy is slowed,″ Lucier said in a recent outlook report. ″Fertilizer prices fell 8 percent in 1986 and are forecast to fall a similar amount in 1987.″

Net farm income this year is expected to be around $28 billion, down from $30.5 billion in 1985, Lucier said. The forecast for 1987, without an OPEC oil price increase, is about $32 billion.

Jack McEowen, agribusiness specialist at Michigan State University, said earlier this month that energy costs will continue to bear heavily on the financial returns of farmers in the coming year.

″If reason prevails in the U.S. and does not or cannot within OPEC, continued favorable price levels of fuels can be expected to the coming crop season and subsequent seasons,″ McEowen said. ″This will also exert downward cost-price pressures on other inputs such as transportation, (crop) drying, and nitrogen products for both feed and fertilizers.″

McEowen added: ″Only a unified OPEC could substantially raise fuel prices during the next crop year.″

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WASHINGTON (AP) - The nation’s cotton harvest continues to drag in some areas because of poor weather conditions, according to weekly government survey report.

As of Dec. 20, an estimated 80 percent of the 1986 cotton acreage was harvested, compared with a 91 percent progress normally at this time, said the Joint Agricultural Weather Facility.

″Harvest was near completion except in the Southeast, southern plains and New Mexico,″ the report said.

The Texas harvest was 64 percent finished as of Dec. 20, compared to 84 percent normally. Many producers contemplated plowing up unharvested acreages as the crop continued to deteriorate.

Oklahoma’s cotton harvest was reported 30 percent completed, compared with 65 percent normally.

In North Carolina, the harvest was 96 percent finished, about on target, the report showed. The harvest was also 96 percent completed in South Carolina, 4 percentage points later than usual.

The 1987 cotton harvest nationally is estimated by the Agriculture Department at 9.79 million bales, down from 9.88 million bales indicated in November. Last year’s crop was more than 13.4 million bales.

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WASHINGTON (AP) - Laying hens in the major egg states shelled out an estimated 4.79 billion eggs last month, a 1 percent increase from November 1985, according to an Agriculture Department report.

As of Dec. 1, there were about 280 million hens in egg flocks, virtually the same as a year earlier. But the report said the rate of lay averaged 68.6 eggs per 100 birds on Dec. 1, up from 68.0 a year earlier.

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