2009 to be a Rough Year, Say UGA Farm Economists

US - University of Georgia economic experts at the 2009 Ag Forecast in Gainesville, Georgia, used no flattering words to describe the current or future economic outlook for the US and Georgia’s agriculture sector, still staggering from major blows received last year.
calendar icon 30 January 2009
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“It’s certainly a year filled with the most uncertainty that I can think of,” said John McKissick, director of the UGA Center for Agribusiness and Economic Development. “Unfortunately, it really is a horrid situation. As we look through most of 2009, we still have a rough patch to go yet.”

UGA predictions say the recession could last through the fourth quarter of 2009, making it the longest since the Great Depression.

Production decreases

For the first time in a long while, farmers will reduce production for what is called the meat complex, which includes beef, pork and poultry.

Beef cattle producers will continue to liquidate their herds. Their cost of production has increased from 80 cents per pound to $1.20 per pound. Milk prices will be down from record high prices last year, he said.

“The crop choices don’t look good at all, partly because of price expectations but mostly because of continued high cost of production,” Mr McKissick said. “So the potential crop profit situation has completely changed from 2008.”

Mr McKissick predicts a bidding war between corn and soybeans for limited farm acreage again in 2009 with soybeans winning out. In Georgia, soybeans will likely gain acreage. Peanut, corn and wheat acreage will go down.

“There is a lot out there that will and can influence the bottom line,” he said. “We can never dwell too much on food quality and safety, and its impact on demand. We see over and over again what that can do to an industry and consumer demand.”

Trade increases

As the world’s population increases, the “percent of agricultural products in the world that move through international trade is going to grow, is growing, especially value-added commodities,” said Octavio Ramirez, head of the UGA College of Agricultural and Environmental Sciences Department of Agricultural and Applied Economics.

Historical markets for US farm commodities are shrinking, Mr Ramirez said. Population decline in higher-income areas like Europe, Japan and Russia will lead to lower demand there.

“Where the growth is going to be is in low-income countries,” he said.

By 2050, populations in high-income countries will increase only 2 per cent. Low-income countries will boom by 46 per cent, adding 2.5 billion consumers in mostly Africa and Asia. Other population growth will occur in Latin America and the US. Europe’s population will decline.

“How many people currently in low-income countries that are lifted out of poverty will be the most significant factor affecting trade in the future,” Mr Ramirez said.

The US is in a good situation when it comes to feeding and clothing the world. Much of the world’s quality soil is in Canada and the US, where yields are high and water is available.

“People have been talking about how we’re going to run out of food for a long time, for 50 to 60 years,” he added. “Ag research has actually increased productivity faster than demand growth.”

Innovation needed

But the US needs to continue to innovate, he said, creating technologies to increase yields and producers’ profits. There are bright spots, Mr McKissick said. Crude oil prices have dropped. After topping out at $140 a barrel, prices plummeted to $40 a barrel. This is good news for producers who saw much of their 2007 and 2008 earnings go to fuel costs. Fuel prices will move up over time, he said, but without dramatic increases.

The US dollar has strengthened. This isn’t good news for US exports because it makes them more expensive. But it is good for imports.

“There are a lot of challenges out there. But there are also reasons for us to be optimistic,” Mr McKissick said to sum up the forecast.

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