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Agriculture is as important to Montana's economic base as is energy development, pointed out George Haynes of the Department of Agriculture Economic and Economics at Montana State University. He was one of the many presenters at the Montana Outlook Seminar sponsored by the Bureau of Business and Economic Research, University of Montana.

In discussing with optimism, Montana's agriculture market for 2012, Haynes underscored a number of interesting developments that are changing the picture of Montana agriculture to some degree.

While grains and livestock remain the staple of the industry for Montana, pulse crops are emerging as increasingly important. Pulse crops are crops like beans, peas and lentils. One regular visitor to northern Montana talks about how the rural landscape is changing from fields of "amber waves of grain" to vistas of alternating swaths of brilliant purple, yellow and white, as the various pulse crops come into bloom.

Montana is becoming a major producer of some of those crops, such as lentils. Pulse crops are becoming important in Montana to aid with continuous cropping, explained Haynes. They put nitrogen into soil which boosts grain production in alternating years. A pulse crop can only be raised on a parcel about one out of every three or four years.

"It's an important product," said Haynes, because of an increasing demand for the crops from Asian countries.

Another change that will play a role in Montana's 2012 ag market is the fact that almost one million acres of Montana farm and pasture land will come out of conservation programs this year – programs in which the land has languished as unproductive, as far as  contributing to the agriculture markets are concerned.

While farmers have the option of putting those acres back into conservation easements, most indicate that they will instead put them into production, said Haynes. If just a third of those acres become productive, it will make a significant impact, said Haynes.

The impact by producers putting the acres back into production will have some positive impacts on the small rural communities in Montana, but probably not as much as some would expect, said Haynes. Some observers have speculated in the past that putting ag land into conservation programs has had a negative impact on the economies of small Montana communities, as the economic activity associated with production ceased. But, Haynes said, that while it makes some difference, the biggest impact on the economies of small communities stems from the fact that farming operations have become bigger and fewer. 

Also, an interesting manifestation of the 2012 Montana ag economy, are changes to the sugar beet market.

The sugar beet business is already benefiting from a significant decrease in cost of production that has been delivered to the industry by "Roundup" tolerant seed, which allows producers to fight weeds without having to make so many trips around the fields, which consumed great amounts of time and fuel.

In addition "the demand side for sugar beets is "very positive," said Haynes, explaining that there is a move in the market away from corn syrups or fructose. Sugar from beets is being used as "an important substitute," which increases demand and hence price.

In addition, Brazil has allocated much of its sugar cane crop to the production of ethanol, and that will also strengthen the price of sugar for beet growers.

The sugar beet business will be "pretty healthy for a couple of years," said Haynes, who said he is "pretty optimistic with what is going on."

Creating another positive point for Montana ag, is the fact that a newly opened market for hay will probably strengthen the demand for Montana hay by as much as 50 percent over the coming years.

Haynes said that when his researchers saw that a lot of hay was being exported out of Montana last year, they expected to see it being sent to the drought-stricken state of Texas. They were surprised to see it was going to Idaho. Investigation as to what was happening revealed that an Idaho company is pelletizing the hay and shipping it to Asian countries where the demand is high and likely to remain high.

Also, an interesting turn of events, pointed out by Haynes, is that there is increasing evidence that some young people are becoming interested in pursing careers in agriculture. That is a very positive development, in an industry that had become quite concerned about the aging rancher population.

Another factor that will have some impact in 2012 is that the ethanol subsidies are now gone and the tariff on ethanol is "finished." That could have "a serious impact on the price of corn." "If we see corn prices go down the price of wheat and barley will also go down," said Haynes. Since part of Montana's projected positive markets for 2012 is based on continued high prices a decline would reverse to some degree such projections.

But, then that would be good news for the fed-cattle market.

In general the Montana's cattle market looks positive, in large part due to decreases in supply at a time when demand for beef remains steady, if not increasing, with a growing export market. Exports have grown because of the strength of the US dollar and increasing global demand from emerging economies in the world.

Because of a decrease in herd numbers – due in part to a prolonged drought in the south – the price for calves have "shot off the charts," said Haynes.

Montana's cattle herd has remained stable and is open for increases, said Haynes. The Montana cow herd declined by two percent in 2010, but total herd value reached a record high. Drought conditions have driven calf prices up by 17 percent from last year, when calf prices increased by nearly 20 percent over the previous year.

The economic downturn has changed the price relationship between cheaper (hamburger) and more expensive (steak) cuts of beef. Hamburger prices have increased at a faster rate than steak, because of a higher demand for the cheaper cuts. That is "less encouraging news for Montana cattle producers, who depend on the steak market for their high quality beef."

By the end of 2012, US beef exports are expected to set a record, exceeding 10 percent of total production.

Supplies of beef will be limited as commercial production is expected to remain low into 2012 and retail prices for competing pork, have remained at unusually high levels. "

Montana's winter wheat crop has had severe wind damage which could be bad news for that market segment.

All wheat prices are expected to be high, however, because of world economic and growing conditions. "Current commodity futures prices suggest that grain prices will remain well above historical average through the 2012 harvest," reported Haynes.

In Montana, wheat production decreased by 19 percent from a record-breaking 215 million bushels in 2010 to 175 million bushels in 2011.

Several factors are driving the agriculture economy for 2012: consumer demand in developing countries, the weak US dollar, a weak domestic economy, and ethanol.

Rising incomes in other countries increase demand for our crops, and the weak dollar will make our grain exports more attractive to customers abroad, explained Haynes.

Organic agriculture continues to gain a stronger foothold in Montana as producers respond to the increasing demand for these food products. As the general economy emerges from the recent recession and median household income improves, the demand for high quality organic and locally grown foods will continue to grow, said Haynes.