**STATEMENT BY KEITH COLLINS**

**CHIEF ECONOMIST, UNITED STATES DEPARTMENT OF AGRICULTURE**

**BEFORE THE SENATE APPROPRIATIONS SUBCOMMITTEE ON AGRICULTURE, RURAL
DEVELOPMENT AND RELATED AGENCIES**

**March 30, 2006**

Mr. Chairman and Members of the Subcommittee thank you for the
opportunity to discuss the general economic situation in U.S.
agriculture as background for the Subcommittee's review of the
Department of Agriculture's (USDA) FY 2007 budget submission. I will
review the major factors affecting agricultural markets in the coming
year and their implications for financial conditions in U.S.
agriculture.

U.S. agriculture experienced an extremely strong recovery following the
economic slowdown at the start of this decade. With solid growth in
domestic and export demand, large crop harvests, and record-high cattle,
broiler and milk prices, net farm income reached a record high in 2004.
In 2005, net farm income reached the second highest level on record
despite a large increase in crop stocks which reduced crop prices;
multiple hurricanes that shut down the central marketing infrastructure
of the country; sharply higher energy prices that raised production,
marketing and processing costs; continued loss of Asian beef markets;
and the emergence of global Avian Influenza (AI) concerns. Adverse
factors were partially offset by continued strong global demand for
food, the ability of the agricultural system to rebound from shocks, a
substantial increase in government support spending and continued strong
livestock and livestock product markets**.**

In the year ahead, global economic growth and food demand is expected to
remain strong, but markets for major crops will face lower prices from
higher stock levels built up from the large production levels the past
two years. In addition, expansion of livestock and livestock product
production following several years of profitable returns will likely
reduce market prices somewhat. Higher interest rates and energy costs
and continued disruption of markets due to animal diseases and weather
are also likely to be factors affecting economic performance. Together,
these factors suggest that net cash farm income will drop in 2006. Even
with the contraction and more financial stress for some farming
operations, the overall farm economy is expected to perform at long-term
average levels with farm household income remaining strong and farm net
worth continuing to increase.

**Global Economic Growth and Farm Product Demand**

The U.S. economy grew at 3.5 percent in 2005, down from 2004's 4.2
percent but well above 2003's 2.7 percent. For 2006, U.S. Gross Domestic
Product (GDP) growth is expected to be slightly less than last year. The
decline in the rate of growth in 2006 from last year is expected to be
due to slower growth in consumption, housing, and tight energy markets.
Increased tightness in labor markets is likely also to be a factor. As
the unemployment rate continues to decline, the lack of unemployed labor
resources tends to slow real productivity and output growth.

Foreign economic growth retreated in 2005 from 2004's strong growth rate
of 4.0 percent, with most areas slowing, particularly Western Europe.
This year, Western Europe is expected to have the strongest growth since
2000, and growth prospects appear good in Canada, Japan, East Asia and
Mexico---all important markets for U.S. agriculture. Foreign economic
growth is expected to rise to 3.4 percent in 2006, up from 2005's 3.2
percent, which would be the second strongest rate of foreign economic
growth since 2000.

With the U.S. economy expected to have another year of steady growth,
consumption expenditures on food remain positive, although the rate of
growth is likely to decline to near 3.5 percent from the unusually high
5 percent levels in 2004 and 2005. Average growth was less than 2.5
percent during the slowdown in 2001 and 2002. This year, slower growth
in consumer spending on food is likely, as consumers face heavier debt
loads, higher energy costs, and are less likely to use household assets
to finance consumption. Consumer spending, which accounts for two-thirds
of GDP, increased only 1.4 percent in the last quarter of 2005, sharply
below the third-quarter, but a rebound is expected in the first quarter
of 2006.

**U.S. Agricultural Trade**

Turning to foreign demand for U.S. agricultural products, our latest
quarterly forecast for farm exports in fiscal year 2006, released in
February, is a record-high \$64.5 billion, up \$2 billion from 2005's
record and unchanged from our last quarterly forecast. Stronger
horticultural product, cotton, and beef exports are expected to show the
greatest gains, while oilseeds and their products, the largest decline
compared with FY 2005. The increase in forecast beef exports assumes
that the current suspension in Japanese imports is a temporary
divergence from the earlier Japanese policy decision to resume imports.
We have no information as to when imports will resume, but for the
purposes of making a forecast, we simply assume Japan resumes imports of
U.S. beef during the second quarter of 2006.

U.S. agricultural imports are forecast at \$63.5 billion, up \$2 billion
from our last forecast, and \$5.8 billion more than in FY 2005. Much of
the increase from last year and from our last forecast is due to
increased imports of coffee, cocoa, sugar, wine, beer, and fruits. The
agricultural trade surplus for FY 2006 is forecast at \$1 billion, down
from \$3 billion in our last forecast and \$4.7 billion in FY 2005.

While the agricultural export-weighted value of the dollar appreciated
in the second half of 2005, at the start of 2006, it was still over 10
percent below the start of the 2003 level. The current period of strong
foreign economic growth and continued effects of the decline in the
value of the dollar from several years ago should show up in higher U.S.
agricultural exports in the future and a modestly improving trade
balance. However, the strong consumption growth in the United States and
the consumer desire for horticultural products suggest the trade balance
in the future will be much smaller than in the past. USDA's long-run
projections issued in February forecast U.S. agricultural exports rising
to nearly \$73 billion by FY 2010 and imports of \$70.5 billion, leaving
a trade surplus of a little over \$2 billion. By 2015, projected exports
equal projected imports.

**Crops: Supply, Demand, and Price**

The 2004/2005 marketing year began with relatively tight crop supplies,
but global production of grains, oilseeds and cotton reached
record-highs. As a result, stock levels increased, market prices
declined, and farm program costs rose. In 2005/2006, global production
was near-record high for most major crops, except for oilseeds
production which set another record-high. Global total use this year is
expected to be about the same as last year for rice and higher than last
year for wheat, coarse grains, oilseeds, and cotton. With generally
lower production and rising consumption, global stocks of most major
commodities will decline this year but remain above the level of two
years ago. In the United States, supplies for feed grains, cotton, rice
and soybeans are at record highs this year, although not for wheat.
Unlike the world market where major crop stocks are expected to decline,
the large 2005-crop U.S. production levels are expected to cause an
increase in corn, soybean, and cotton stocks this year, while wheat
remains about the same and rice declines.

World grain (wheat and coarse grain) consumption this year is expected
to exceed last year's record high and slightly exceed reduced world
production. This will lead to a drawdown in world grain stocks, with
world stocks as a percent of total use not excessive. The picture for
oilseeds is quite different. Global oilseed production is forecast to be
record high for the 10^th^ consecutive year. And, in the coming year,
this increase in production is expected to exceed the increase in
consumption, resulting in higher global stocks. For soybeans, global
stocks as a percent of use is forecast to exceed the high set in 1986.

For the United States, the 2003/2004 grain and oilseed markets, which
featured strong demand and tight supplies, was a major contributor to
the record high farm income of the past two calendar years. The current
market prospects have changed as a result of two consecutive years of
large production and increasing stock levels.

The U.S. soybean situation reflects the world situation, with U.S.
stocks expected to be excessive, rising nearly 400 percent above the
level of two years ago. This jump reflects our bumper harvest this past
fall and strong competition from Brazil. For example, Brazil had record
high soybean exports during the October-December 2005 quarter, and a
rebound in Brazilian production from last year's drought is expected to
boost Brazil's soybean production this spring to 58.5 million tons, up
from 53 million last year. Still, U.S. soybean prices this winter have
been strong in the face of this prospective stock buildup, reflecting
perhaps a risk premium, purchases by index funds, or other factors. For
the year as a whole, the average price received for soybeans is expected
to average \$5.50 per bushel compared with \$5.74 last marketing year.
If the Southern Hemisphere crop and the increase in U.S. stocks
materialize as expected, soybean prices will likely drop in the second
half of the year and into 2006/2007.

For 2006/2007, last year's record-high soybean yields, pressure to
rotate to more soybeans from corn, and high energy costs may cause some
shifting of corn to soybeans. We expect an increase in soybean planted
area of nearly 2 million acres to 74 million. The increase in planted
area, combined with trend yields, would result in production levels near
expected demand; consequently, carryover levels would remain about the
same. With continued heavy stocks and large expected supplies in South
America, weaker prices are expected for soybeans.

The U.S. corn market in 2005/2006 is expected to see another year of
increasing carryover with ending stocks 150 percent above two years ago.
Corn prices have rebounded from the extraordinary lows following the
hurricanes when the transportation network was impaired and are expected
to average \$1.90 per bushel this year, down from \$2.06 last year. As
of the end of February, the average corn loan deficiency payment rate
made so far on 9.75 billion bushels of corn (88 percent of the 2005
crop), was \$0.44 per bushel, up sharply from \$0.27 averaged on the
2004 crop. In addition, producers received marketing loan gains
averaging \$0.42 per bushel on 569 million bushels of corn.

Another important influence on this year's and future corn and other
crop markets is biofuels. While biodiesel production has increased from
less than a half million gallons in 1999 to over 70 million in 2005, it
remains relatively small, equivalent to 3 percent of soybean oil
production. That is about where ethanol production was relative to corn
production in 1983. Ethanol production this marketing year is expected
to account for 14 percent of U.S. corn production. The USDA baseline,
released on February 10, 2006, projects ethanol production will account
for 22 percent of corn use by 2010 and drive corn prices to \$2.60 per
bushel.

In 2004, ethanol accounted for about 2 percent of motor gasoline use in
the United States on a btu basis. Under the Department of Energy's
baseline projections for motor gasoline and ethanol use to 2010,
gasoline use is expected to grow 1.2 percent per year, and ethanol use
at over 15 percent per year. Consequently, ethanol is expected to
account for over one-quarter of the *increase* in motor gasoline use
through 2010.

For 2006/2007, with soybean area expected to expand, high corn stocks,
and high energy prices, corn planted area is forecast to decline 1.3
million acres to 80.5 million. Less acreage and stronger ethanol use is
expected to reduce carryover and raise corn prices \$0.25 per bushel, or
13 percent, over the 2005/2006 expected average farm price.

The 2005/2006 wheat market is in good overall balance, with carryover
stocks forecast to be nearly the same as last year and the year before.
Farm prices are forecast to average \$3.40 per bushel, the same as in
each of the past two marketing years. After much of the 2005-crop had
been marketed, wheat prices started to rise reflecting reduced 2006-crop
prospects due to deteriorating weather conditions in the United States
and abroad and a currently tight situation for hard red winter wheat.
The last week of February saw the nearby Kansas City wheat futures price
reach a 40-month high.

For 2006/2007, wheat acreage, which has been trending down and is now 30
million acres less than 25 years ago, is expected to increase by less
than 1 million acres to 58 million due to more winter wheat planted last
fall. Fall seedings were up reflecting the better price prospects than
other crops and good planting weather in the Corn Belt. Yield prospects
for the 2006 crop are clouded by the intense drought in the South in
areas west of the Mississippi River. Winter wheat in Texas was rated 89
percent poor or very poor as the end of February and the quality of the
wheat crop is also reported to be down sharply in Oklahoma. Wheat yield
problems are also expected in the Former Soviet Union, an important
grain producer, where planted acreage of winter grains are down and a
very harsh winter is likely to result in above average winterkill. These
poor starting conditions suggest global wheat production will be down
again in 2006/2007. If at this point we use trend yields, U.S. wheat
production would be near expected demand and wheat 2006/2007 carryover
levels and average farm price would remain about the same as this year.

U.S. cotton production reached an all-time high in 2005/2006, and stocks
are expected to rise for the second year in a row to 7 million bales,
double the level two years ago. The increase is expected despite a
forecast of record-high exports of 16.4 million bales, up 2 million from
last season. About half of U.S. cotton exports are expected to go to
China where domestic use is rising rapidly and production is down from
last season. U.S. cotton mill use continues to trend down as textile
mill activity continues to move offshore. Mill use this year is forecast
at 5.9 million bales, compared with 6.7 million last season. Even with
stocks increasing, farm prices of cotton have been running above
year-ago levels as the world stock situation is tightening.

For 2006/2007, lower production is expected to support prices as a third
consecutive record-high crop is unlikely. With the prospect of continued
strong exports, ending stocks will likely decline to more average levels
in 2006/2007.

Despite a near-record crop, a sharp increase in exports is moving the
U.S. rice market into balance with only a slight rise in stocks expected
this year compared with two years ago. Rice ending stocks are forecast
at 26.5 million cwt., down from carry-in stocks of 37.7 million cwt.
Medium grain stocks at 5.25 million cwt are the tightest on record
(since 1982/1983--first year of supply and use statistics for rice by
class). The global rice market is the major factor contributing to
strong exports and steady U.S. farm prices, as global ending stocks are
expected to be the lowest since 1982/1983, with the stocks-to-use ratio
the lowest since 1974/1975. U.S. average farm-level rice prices are
forecast at \$7.80 per cwt. this season compared with \$7.33 last
season.

For 2006/2007, a rebound from last fall's reduced yields would raise
rice production, but with production costs rising, producers are
expected to reduce plantings causing production to decline for the
second year in a row. As in 2005/06, total use is expected to outpace
production leading to another decline in carryover stocks and higher
rice farm prices in 2006/2007.

Under the 2002 Farm Bill, lower prices for major crops trigger increases
in counter-cyclical payments and marketing assistance loan benefits,
thus increasing farm program costs. Based on current market price
projections, counter-cyclical payments could reach \$5.2 billion for the
2005/2006 crops, up from about \$4.3 billion for the 2004/2005 crops and
\$0.5 billion for the 2003/2004 crops. Marketing assistance loan
benefits (loan deficiency payments, marketing loan gains and certificate
exchange gains) are projected to increase from less than \$1 billion for
the 2003/2004 crops to \$5.5 billion for the 2004/05 crops to about
\$6.1 billion for the 2005/2006 crops. In addition, program crop
producers receive nearly \$5.3 billion annually in direct payments.

The 2005/2006 sugar market has been very different from other crops this
year as hurricane-reduced production has driven prices up substantially.
Since this market is heavily regulated by USDA, the Department has
substantially increased import quotas to meet this year's demand and
help relieve market tightness. In the current marketing year, sugar
imports are forecast to reach 3.1 million tons, up from 2.1 million tons
last year and 1.8 million tons two years ago.

Fruits, vegetables, nursery and greenhouse products continue to provide
good news for U.S. agriculture. They are expected to generate \$49
billion in sales in 2006, similar to 2005, and account for 21 percent of
farm cash receipts. Sales of these products are now about equal to the
value of sales of program crops. U.S. horticultural exports are forecast
at \$16.3 billion and imports at \$28.2 billion, indicating a continuing
widening of the sector's traditional trade deficit.

**Livestock & Livestock Products: Production, Demand and Price**

Turning to livestock and poultry markets, U.S. meat exports continue to
be heavily influenced by animal diseases. Although we expect rising beef
exports in 2006 as trade with Japan eventually resumes, beef exports are
still expected to be only about 40 percent of the level of 2003. Our
current forecast assumes shipments to Japan resume in the second quarter
and does not include any exports to South Korea. We expect the Korean
market to open soon and at that time we will incorporate exports to
South Korea into our forecasts. With continuing limitations on beef
exports, pork exports are forecast to be 4 percent higher than 2005's
record high. Lower broiler prices this year would normally help increase
exports. However, in January, the forecast of the rate of growth in
poultry exports was lowered to a 4 percent increase, half the rate of
our prior estimate and down from last year's 9 percent increase, due to
reduced consumption in some countries due to AI concerns. In recent
weeks, AI has been found in Europe and other areas, suggesting USDA's
poultry export forecast could go lower in the months ahead.

While animal disease issues are surrounding meat and poultry export
prospects, U.S. production of meat and poultry is expected to be
record-high in 2006, leading to record-high U.S. per capita meat and
poultry consumption. With a 3 percent increase in U.S. meat and poultry
production in 2006, a mixed export picture, and some slowing in the
growth of overall consumer expenditures, lower live animal, meat and
poultry prices are expected in 2006.

Even though several countries continued to block imports of U.S. beef,
U.S. livestock markets were very strong in 2005. The index of prices
received for meat animals was an all-time high, 4 percent above 2004 and
17 percent above 2003. Although U.S. cattle numbers increased for the
first time in 9 years in 2005, cattle slaughter continued to drop. For
2006, the situation will change. First, the U.S. cattle inventory on
January 1, 2006 was up 2 percent over last year, indicating that
producers are now moving well into the expansion phase of the cattle
cycle. Second, live cattle imports from Canada will be up in 2005.
Third, higher carcass weights are expected. And lastly, drought
conditions in Texas and Oklahoma are causing some producers to market
additional animals and to place cattle in feedlots sooner. Consequently,
cattle slaughter and beef production are expected to increase a strong 5
percent in 2006. Despite the increase in output, choice fed cattle
prices are expected to decline only about 2 percent to about \$85 per
cwt., and retail beef prices are expected to be down about 3-4 percent.

Despite sustained profitability in hog production, hog producers have
been cautious about expanding the past few years. Still, with
back-to-back years of good returns, we expect hog slaughter and pork
production to be up about 3 percent in 2006 following a modest increase
of 0.8 percent in 2005. Hog prices are expected be average \$44 per cwt.
in 2005, down about 13 percent from last year, but still stronger than
during the 1998 to 2003 period.

Broiler production is expected to again be record high in 2006. A nearly
4 percent increase in production in 2005 was driven by record-high
broiler prices in 2004 and low feed prices. Although broiler prices fell
about 5 percent in 2005, they remained fairly strong and with favorable
feed costs, broiler production is expected to be about 2 percent higher
in 2006. Wholesale broiler prices are expected to average 67 cents per
pound, down from 70.8 cents last year. However, this forecast was made
prior to the finding of AI in Europe and the current acceleration in its
spread. As AI has become more widespread, world poultry trade has
slowed, which is now adversely affecting U.S. poultry exports and
broiler prices. In late February, prices of leg quarters, the principal
U.S. broiler export product, had fallen to the low 20-cents-per-pound
range, after reaching the high 40-cents-per-pound range in late fall.

Milk, like meat and poultry, is coming off two years of strong prices.
Widespread forage problems and reduced rBST are largely behind producers
now, and following record and near record milk prices in 2004 and 2005,
milk production is accelerating. U.S. milk production in January 2006
was up an extremely strong 5 percent over January 2005. In 2004, milk
production was flat; in 2005, it rose 3.3 percent; and in 2006, it is
forecast to be up nearly 3 percent despite declining prices. Increased
milk production this year is expected to exceed the trend growth in
dairy product demand, consequently, the all-milk price is forecast to
average \$13.45 per cwt. in 2006, down 10 percent from 2005. Payments
were triggered under the newly reauthorized Milk Income Loss Contract
Program beginning in December 2005, following essentially no payments
from the second quarter of 2004 through the third quarter of 2005. The
payment rate for March will be \$0.41 per cwt. the highest rate since
March 2004. Cheese prices have recently declined to near support levels
and price support purchases of nonfat dry milk and cheese are likely
during 2006. There were no purchases of dairy products under the milk
price support program in 2005.

**Farm Income and Government Payments**

In 2004, net farm cash income reached nearly \$86 billion, up from the
previous record of \$72 billion in 2003. Declining crop prices and
increasing production expenses caused net cash farm income to decline to
\$83 billion in 2005. In 2006, the farm economy is pulling back from the
strong crop prices and production levels in 2003 and 2004 and the record
livestock and milk prices of 2004 and 2005. With higher crop stocks,
reduced crop prices, and a modest decline in livestock sector receipts,
the value of 2006 farm marketings is expected to decline about \$7
billion from the last year's near record \$239 billion, with two-thirds
of the decline in crops. With further increases in production expenses
and lower government payments, net cash farm income is forecast to fall
to \$65 billion in 2006, or about equal to the previous 10-year average.

In 2005, government payments to producers were a record high \$23
billion, up from \$13 billion in 2004. In 2005, increased marketing loan
costs aggravated by the marketing system disruption caused by the
hurricanes, increased counter-cyclical payments, ad hoc disaster
assistance, and tobacco program buyout payments all contributed to
higher government payments. Payments to farmers are expected to decline
by \$4.5 billion in 2006 due to lower ad hoc disaster payments,
marketing assistance loan outlays, and tobacco buyout payments.

Cash production expenses are expected to rise 4 percent in 2006
following increases of 6 percent in 2005 and 5 percent in 2004.
Energy-related input (fertilizer, lime, fuels, oils, and electricity)
and interest expenses increased by \$6.5 billion in 2005 and are
expected to rise by over \$4 billion or 10 percent in 2006. For 2006,
the Department of Energy projects that diesel and natural gas will cost
another 5 percent more on top of the increases of around 35 percent that
these fuels saw in 2005. Corn, a heavy user of energy for fertilizer,
irrigation and grain drying, can be used to illustrate the impact of
higher energy costs on crop returns. For 2006, energy is expected to add
about 5 cents to national average corn operating costs compared with a
year ago and 23 cents more than two years ago. These rising costs will
reduce farm income and have some effect on crop acreage and production
in 2006. This forecast increase in energy expenses assumes producers
will not alter their production methods to reduce energy use and lower
costs, and of course, many will do so.

Net farm income is expected to decline for all major types of crop and
livestock farms and in all production regions. Farm household income is
also expected to decline for the first time in 7 years, but at over
\$80,300, would still be 20 percent higher than in 2003 and well above
the average of all U.S. households.

Despite the drop in income and the increase in interest rates, we
project that farm real estate values will rise 6.5 percent in 2006, down
slightly from the 7 percent gain in 2005. Another land value increase
would continue the recent strong improvement in the farm sector balance
sheet. The ratio of real estate value to net cash farm income, a concept
similar to a price-to-earnings ratio, is forecast to spike up in 2006 to
the highest level since the early 1980s. If that ratio were to stay high
over the next few years, it would suggest the increase in farmland
values may not be sustainable. For the last 3 years in a row, farm net
worth has gone up by an average of nearly \$95 billion per year, which
is more than the increase in farm income each year and much more than
the \$6 billion annual increase in farm debt. That is expected to be
true again in 2006. Farm net worth, or equity is now a record high at
\$1.4 trillion and the debt-to-asset ratio at the end of 2006 is
forecast at 13.1 percent, the lowest in 45 years.

A return to average national farm income, lower enterprise and regional
farm income, lower cash margins, and an increase in farm debt do not
indicate an impending financial crisis in U.S. agriculture. Yet, they do
suggest there is likely to be greater financial stress for an increasing
number of producers. That stress is likely to show up in tighter credit
standards, delayed loan repayments and loan extensions, and more demand
for USDA credit guarantees. The coming year will present more of a
financial challenge for U.S. agriculture than in recent years. In
addition, agriculture will have to contend with questions over the
effect of rising interest rates on the durability of the U.S. economic
recovery, the value of the dollar, issues raised by the Federal budget
deficit, trade negotiations, bird flu, BSE, oil prices, and terrorism.
Producers will likely need to draw more on their resiliency and
managerial capabilities in 2006 than during in the past couple of years
of abnormally high farm income.

That completes my comments and thank you.

**Farm Economic Indicators**

+--------------+------+-----+-----+-----+-----+-----+------+------+
| **[Commodity | **Un | **  | **  | **  | **  | **2 | **2  | **20 |
| Prices       | it** | 199 | 200 | 200 | 200 | 003 | 004/ | 05/0 |
| 1/]{.        |      | 9/0 | 0/0 | 1/0 | 2/0 | /04 | 05** | 6F** |
| underline}** |      | 0** | 1** | 2** | 3** | E** |      |      |
+--------------+------+-----+-----+-----+-----+-----+------+------+
| Wheat        | \    | 2   | 2   | 2   | 3   | 3   | 3.40 | 3.40 |
|              | $/bu | .48 | .62 | .78 | .56 | .40 |      |      |
+--------------+------+-----+-----+-----+-----+-----+------+------+
| Corn         | \    | 1   | 1   | 1   | 2   | 2   | 2.06 | 1.90 |
|              | $/bu | .82 | .85 | .97 | .32 | .42 |      |      |
+--------------+------+-----+-----+-----+-----+-----+------+------+
| Soybeans     | \    | 4   | 4   | 4   | 5   | 7   | 5.74 | 5.50 |
|              | $/bu | .63 | .54 | .38 | .53 | .34 |      |      |
+--------------+------+-----+-----+-----+-----+-----+------+------+
| Rice         | \$   | 5   | 5   | 4   | 4   | 8   | 7.33 | 7.80 |
|              | /cwt | .93 | .61 | .25 | .49 | .08 |      |      |
+--------------+------+-----+-----+-----+-----+-----+------+------+
| Cotton       | cent | 45  | 4   | 2   | 4   | 6   | 41.6 | 46.9 |
|              | s/lb | .00 | 9.8 | 9.8 | 4.5 | 1.8 |      | 2/   |
+--------------+------+-----+-----+-----+-----+-----+------+------+
|              |      | **  | **  | **  | **  | **  | **20 | *    |
|              |      | 200 | 200 | 200 | 200 | 200 | 05** | *200 |
|              |      | 0** | 1** | 2** | 3** | 4** |      | 6F** |
+--------------+------+-----+-----+-----+-----+-----+------+------+
| Hogs         | \$   | 44  | 45  | 34  | 39  | 52  | 5    | 4    |
|              | /cwt | .70 | .81 | .92 | .45 | .51 | 0.05 | 2-45 |
+--------------+------+-----+-----+-----+-----+-----+------+------+
| Steers       | \$   | 69  | 72  | 67  | 84  | 84  | 8    | 8    |
|              | /cwt | .65 | .71 | .04 | .69 | .75 | 7.28 | 3-88 |
+--------------+------+-----+-----+-----+-----+-----+------+------+
| Broilers     | cent | 5   | 5   | 5   | 6   | 7   | 70.8 | 6    |
|              | s/lb | 6.2 | 9.1 | 5.6 | 2.0 | 4.1 |      | 5-69 |
+--------------+------+-----+-----+-----+-----+-----+------+------+
| Milk         | \$   | 12  | 15  | 12  | 12  | 16  | 1    | 13.  |
|              | /cwt | .40 | .04 | .18 | .55 | .05 | 5.15 | 10-1 |
|              |      |     |     |     |     |     |      | 3.80 |
|              |      |     |     |     |     |     | 121  |      |
|              |      |     |     |     |     |     | 5.15 |      |
+--------------+------+-----+-----+-----+-----+-----+------+------+
| Gasoline     | \    | 1   | 1   | 1   | 1   | 1   | 2.31 | 2.50 |
|              | $/ga | .53 | .47 | .39 | .60 | .89 |      |      |
|              | llon |     |     |     |     |     |      |      |
+--------------+------+-----+-----+-----+-----+-----+------+------+
| Diesel       | \    | 1   | 1   | 1   | 1   | 1   | 2.41 | 2.51 |
|              | $/ga | .49 | .40 | .32 | .50 | .81 |      |      |
|              | llon |     |     |     |     |     |      |      |
+--------------+------+-----+-----+-----+-----+-----+------+------+
| Natural gas  | \$/K | 3   | 4   | 2   | 4   | 5   | 7.45 | 7.93 |
| (wlhd)       | cu.  | .70 | .01 | .95 | .89 | .50 |      |      |
|              | ft.  |     |     |     |     |     |      |      |
+--------------+------+-----+-----+-----+-----+-----+------+------+
| Electricity  | \$   | 8   | 8   | 8   | 8   | 8   | 9.45 | 9.65 |
|              | /kwh | .24 | .62 | .45 | .70 | .97 |      |      |
+--------------+------+-----+-----+-----+-----+-----+------+------+

  -------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
  **[Ag.               **FY99**   **FY00**   **FY01**   **FY02**   **FY03**   **FY04**   **FY05**   **FY06F**
  Trade]{.underline}                                                                                
  (Bil. \$)**                                                                                       

  Total exports        49.1       50.7       52.7       53.3       56.2       62.4       62.4       64.5

  Asia                 18.5       19.7       20.1       19.4       21.6       24.3       22.5       22.6

  Canada               7.0        7.5        8.0        8.6        9.1        9.5        10.4       11.0

  Mexico               5.7        6.3        7.3        7.1        7.7        8.4        9.2        9.8

  Total imports        37.3       38.9       39.0       41.0       45.7       52.7       57.7       63.5

  **[Farm Income (Bil. **1999**   **2000**   **2001**   **2002**   **2003**   **2004**   **2005**   **2006F**
  \$)]{.underline}**                                                                                

  Cash receipts        187.6      192.0      200.1      195.0      216.6      241.2      239.0      231.7

  Gov't payments       21.5       22.9       20.7       11.2       17.2       13.3       23.0       18.5

  Gross cash income    224.0      228.6      235.6      221.0      249.5      271.7      279.5      268.2

  Cash expenses        166.6      172.1      176.0      171.6      177.9      186.2      196.7      203.5

  Net cash income      57.5       56.5       59.5       49.5       71.6       85.5       82.8       64.8
  -------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------

F=forecast.

1/ Agricultural commodity price forecasts are from USDA, World
Agricultural Supply and Demand Estimates report, February 2006. Crop
prices are the midpoint of the forecast range. Energy prices are from
Energy Information Administration, Short Term Energy Outlook, February
7, 2006.

2/ August through December 2005 average.

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