Things should improve next year
By Dairy Herd news source
| Monday, March 09, 2009
Another report — this time from the Food and Agricultural Policy Research Institute — says farmers will feel the effects of slowing economies, both global and domestic, as uncertainty continues. Consumers will see lower food price inflation, according to FAPRI economists.
In a recent report to Congress, a 10-year FAPRI baseline shows all sectors of agriculture facing volatility in prices and continued high production cost.
Food inflation hit a high of 5.5 percent in 2008, but that has slowed in recent months. FAPRI projects food inflation at 2.7 percent for 2009.
U.S. consumers, facing higher prices and lost jobs, scaled back by buying fewer steaks and more hamburger. Food exports, such as grain, beef and dairy products, have dropped sharply, causing lower prices for farmers.
“Volatility is the word that best describes agricultural markets,” says Pat Westhoff, FAPRI co-director and crops economist at the University of Missouri-Columbia. After a record-breaking year in 2008, in 2009 the drops in crop and livestock receipts outpace any lowering of production costs.
FAPRI projects that low prices can cut U.S. net farm income by $18 billion in 2009. Income is expected to recover slightly in 2010. However, a return to 2008 levels is not expected before 2014. “The farm upturn projected for 2010 is based on a recovery in the general economy,” Westhoff says. FAPRI uses general economic projections from IHS Global Insight.
Rising oil prices, strong global economic growth, a weakening U.S. dollar and poor weather in many countries contributed to high commodity prices in 2007 and early 2008, FAPRI economists report. That changed in late 2008 with dropping oil prices, a faltering global economy and a strong U.S. dollar. Meanwhile, better weather around the world increased exports from grain- growing nations.
Volatility is illustrated by what dairy producers face as demand drops. Milk, with a short shelf life, has been highly volatile for more than a decade, notes Scott Brown, FAPRI livestock economist. Milk prices, led by faltering world demand for U.S. dairy products, are forecast at near-historic lows in 2009. “The worst profit ever is not a record U.S. dairy farmers want to break,” Brown says.
Average prices in 2008 ran at more than $18 per hundredweight, with peaks over $20. FAPRI projects an all-milk average in 2009 at $13, with variations around the average dropping to $11.
Strong international demand for all dairy products led to record-high domestic milk prices. When world economies collapsed and the U.S. dollar strengthened, weak U.S. exports followed.
Contraction will be the theme in 2009 as the U.S. livestock industries search for higher output prices to offset higher production cost, Brown said.
To access the full FAPRI report, click here.
Source: Food and Agricultural Policy Research Institute
