farmgate: When The Global Recession Ends, Will You Be Ready To Resume?
Is your farm income dependent on the export market? If you are raising sweet corn, pumpkins, and other domestic vegetables, there is probably not much dependency. But if you are raising corn, soybeans, and hogs, there is a substantial impact. Even though hog profits are elusive, $32 of the value of every market hog comes from the export market, and it was higher last year before the global recession hit. One of six rows of corn and one of three rows of soybeans are exported, and so when the recession spread around the world, US ag trade was interrupted and commodity prices were affected.
US agricultural exports reached a high water mark of $115 billion in Fiscal Year 2008 with the help of high commodity prices and wealthy world consumers willing to buy them. But a $20 billion decline from that is anticipated when Fiscal Year 2009 concludes in September, thanks to the recession. USDA’s Economics Research Service Amber Waves newsletter says the overall decline in trade is due to reduced economic growth abroad, exchange rate movements, and declining US spending. Regarding US exports, many of our trading partners are suffering the same economic blahs seen in the US. Compared to mid 2008, economic growth is down:
• Canada-4.5%
• Mexico-7.5%
• European Union-5.1%
• India-3.4%
• China-3%
• Japan-6.8%
• Russia-8%
The USDA economists say, “All major developed economies still slid into recession. The U.S. and the world economy subsequently entered one of the deepest downturns since World War II, with global growth turning negative.” They point to China and say, “In 2009, China’s economy is expected to grow less than 6 percent, largely because reduced consumer spending in developed countries is causing the first annual decline in Chinese exports in 25 years.”
Until the economic slowdown, US ag exports had paralleled global agricultural trade, which grew over 50% from 2000 to 2006, after growing only 25% in the decade of the 90’s. But since late 2008, the stronger dollar has hurt US exports, particularly bulk commodities since they are more expensive compared to commodity shipments from competing sources. While horticultural and processed food exports will only decline 6% this year, there will be a 26% decline in US bulk commodity exports.
The USDA economists do not believe the current problems will be part of a long term problem, since similar recessions have only impacted US exports for no more than 1-2 years. They say, “The long-term trend in U.S. agricultural export growth prevailed despite large swings in the mid-1980s and late 1990s caused by macroeconomic, weather, and policy events. Now, prospects for U.S. and global agricultural trade will clearly hinge on the resumption of global economic growth.” But they are not ready to predict when that will happen. However, fiscal and monetary actions are expected to help world economic growth recover beginning next year, and USDA’s economists project a 2% growth in world GDP and a 5% growth in world trade continuing into 2011 and 2012.
Such resumption in growth and trade will translate into “increased food demand because consumers are likely to consume more food and diversify their diets to include higher value goods such as red meat, poultry, and other livestock products. Rising incomes along with continued population growth is expected to increase trade in both meats and animal feeds. The USDA projections anticipate rising global trade volumes for all major food and feed grains, soybeans and soybean products, and beef, pork, and poultry. With commodity prices remaining high compared with levels preceding the 2008 price spike, the value of U.S. agricultural exports is projected to rise steadily back toward the peak level recorded in 2008.”
So the market demand will be present, but with US farmers be ready? That is the question USDA is considering because of factors left over from the recession, “U.S. agricultural exports will be influenced by the uncertainties of increasing farm costs and limited resources. A key issue in the future will be the ability of U.S. agricultural production to expand to meet future export demand without escalating costs. In conjunction with sustained foreign demand, long-term productivity gains will be a key component in maintaining U.S. export competitiveness.”
Summary:
Grain and livestock commodity prices have certainly softened because of the global recession, pushing meats down to the level of unprofitability, and challenging the profitability for grain producers. However, the economic atmosphere may be changing with a recovery to positive territory in 2010. USDA says farmers will be able to compete again, as long as costs are kept under control and productivity gains can be sustained.
Posted by Stu Ellis on July 2, 2009 12:53 AM to farmgate