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Missouri Ag Outlook Conference projects slow recovery
By Doug Rich "We are in a recovery but it will not feel like it," Jason Henderson said. Henderson, vice-president and Omaha executive with the Federal Reserve Bank of Kansas City, spoke during the Missouri Agriculture Outlook Conference held March 11 in Jefferson City, Mo. Historically, in this country, the first year after a recession our economy would grow four to nine percent. Henderson expects the economy to grow about three percent in 2010. However, the main reason this will not feel like a recovery is that it will take a while to add new jobs. Henderson described this as a jobless recovery. The recovery will not be strong enough to recover all of the jobs that have been lost in the last few years. Most businesses have downsized and are producing the same amount of goods with fewer people. When jobs do start coming back, Henderson said it would be more from the creation of high-skilled jobs, rather than jobs returning from overseas. The bottom line for many businesses is improving, and they are starting to invest back into their companies. This money is being spent on new equipment and not on new jobs. "No matter what the economy is doing, at some time they have to purchase new equipment," Henderson said. In general, businesses are uncertain about what is going on with government policies. They need to know the rules of the game, or they will stay on the sidelines. This uncertainty includes the growing federal deficit. "This is something we have to get under control; at some point we will have to pay this off," Henderson said. As the country pulls itself out of this recession, farmers and ranchers are concerned about access to credit. Henderson said the charge-off rates in the commercial real estate sector are rising. Unlike recent real estate problems that were limited to a handful of the largest banks, commercial real estate is spread throughout the banking system. This could limit the amount of money available to lend on other projects. Another meltdown is a risk with the commercial real estate sector, but it would be smaller and more spread out. Henderson did not see a big decline in lending to agriculture, however. "Banks are making loans," he said. Since December, land values have started rising again. Henderson said the U.S. Department of Agriculture expects land value to decline overall because the non-farm demand for farmland has fallen off. Urban sprawl has slowed down as well. "Everything is strikingly similar to the 1970s except for debt and inflation," Henderson said. Debt in the farm sector is historically low, but money is cheap right now and that is a huge incentive for debt. "Did we learn any lessons from the 1970s and 1980s?" Henderson asked. Henderson provided the macro-economic outlook. The baseline outlook for Missouri as provided by economists with the Food and Agricultural Policy Research Institute based at the University of Missouri. FAPRI economists had just returned from Washington, D.C., where they presented their U.S. baseline projections for agricultural and biofuel markets. "There will be more volatility in the future because there are too many uncertainties," Pat Westhoff said. Westhoff, co-director of FAPRI-MU, provided the outlook for Missouri crops in the next crop year. Westhoff said Missouri corn prices are expected to average in the $3.50- to $4-per-bushel range for the next few years. Soybeans will range between $8.50 and $9.50. "The presence of risk factors not incorporated into the projections will likely lead to more volatility than these numbers indicate," Westhoff said. Scott Brown, director of the livestock and dairy program at FAPRI-MU, gave the outlook for the livestock sector in Missouri. Brown said he was optimistic about the livestock if we get economic recovery. Long term, there are three issues that worry Brown. First, are suppliers becoming less responsive to bad returns? For example, if a dairy farmer is set up to handle 300 cows he is going to milk 300 cows no matter what the market dictates. Secondly, Brown wonders if U.S. consumers have permanently changed their consumption habits. Finally, does price volatility pick winners and losers? In 2010, Brown expects the milk price to average $16.78 per hundredweight, hog prices will average near 43 cents per pound, and calf prices will average $1.13 per pound. "Once profitability returns to meat production, cattle and hog producers will once again be able to show modest expansion in their herd sizes but not rebuild to the levels seen prior to the recession," Brown said. Missouri's dairy industry will continue the long-term decline in the number of milk cows in the state. The key to all of these prices could depend on consumer confidence. Brown said it is hard to know how quickly the economy will turn around. Doug Rich can be reached by phone at 785-749-5304 or by email at richhpj@aol.com.
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