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Lawrence County ag conference offers 2010 predictions

Friday, January 15, 2010

Agriculture market analyst Scott Brown.
Ag producers received very little good news during the economic forecast presented at the 86th annual Lawrence County Soils and Crops Conference, which was held last week at the University of Missouri's Southwest Research Center, near Mt. Vernon.

Scott Brown, an analyst with the Food and Agricultural Policy Research Institute (FAPRI), expected to see animal production shrink as public demand stays low in the coming year.

In the past, the quantity of animals on the market significantly affected prices. Now, Brown said, a dramatic shift has occurred where customer demand has become an even bigger factor. During the first half of 2009, consumer demand for pork increased by 4 percent. Demand for beef, which has been falling since 2005, dipped further, as did demand for chicken.

"The phenomenon of buying down," Brown said, shown by the public preferring cheaper cuts of meat over prime cuts, "may stay with us for awhile."

Exports have made a major contribution to saving animal producers in recent years. Per capita meat consumption rose in 2008 solely on export strength, but in 2009 domestic consumption dropped steadily and foreign sales weakened.

Brown expected export demand would grow very slowly over the next four years. If the dollar declines in value against other currencies, American meat will become more attractive in other markets, boosting demand.

Missouri has dropped from having the second largest number of cattle in any state to third place. Brown felt the current situation is not due to a lack of supply. Unfortunately, the only remedy he saw to better cattle prices is a further reduction in supply.

Brown saw a number of other pressures on the industry. Costs for beef production have been running 40 to 50 percent above the longterm average. Demand for cattle hide and other non-meat biproducts was down significantly in 2009 compared to 2008, except for December.

More significantly, what happens to the corn market will have a big effect on the cattle industry, according to Brown. The supply of corn is below 2 billion bushels, half of what it was when the federal government was stockpiling supplies in the 1980s. Brown expected stocks of corn would stay tight for the foreseeable future.

"I think volatility [in corn prices] will stay with you," Brown said. "We see an opportunity for very expensive feed."

Since corn is a key feed ingredient for cattle, dry weather could drive prices very high while more typical weather years may result in high yields and lower prices.

In addition, the rise of crude oil prices back to $80 a barrel has been a concern. If oil goes back over $100 a barrel, Brown expected strong demand for corn to make ethanol would return.

Part of the demand for corn is driven by national policy for renewable fuels, Brown said. While he expected demands for advanced biofuels would continue, Brown said it is "hard to say" if the desired amount of biofuel can be made.

Crude oil at $100 a barrel also threatens to derail consumer confidence, which slid steadily from mid-2007 to February 2009. Analysts tracking the U.S. gross domestic product (GDP) saw national production of goods going up sharply in the first half of 2009 but falling in the last six months.

Nonetheless, Brown said analysts are predicting the gross domestic product will stabilize in the coming year.

"We've not seen the GDP like this back to 1960," Brown said.

Analysts at FAPRI had varied opinions about how the economic recovery would proceed. Charts shared by Brown tended to show a leveling off in many trends, such as the cost to produce meat from grain and export volumes.

Brown's final charts showing livestock prices over the next 10 years showed a gradual increase. Pork prices are predicted to have the most steady rise while both fed steer and poultry prices are expected to go up sharply over the next three years then dip down again.

The only major upswing seen in the food industry of late has been the demand for chicken wings. Brown said pizza restaurants have substituted chicken as a side instead of expensive cheese, boosting demand and chicken prices. Brown added he did not see a greater use of beef in upcoming restaurant trends.

"If and when demand turns around, we could see pretty good price pops," Brown said. "We could be short in meat products pretty quickly."

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