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Ag statistics show major market improvements in 2010

Monday, August 16, 2010

The agriculture economy has improved as the year has progressed. Stronger demand for meat products and better dairy prices have made a more optimistic picture, according to Scott Brown, an analyst with the Food and Agriculture Policy Research Institute (FAPRI).

Brown painted a rather dark picture of the ag economy in January when he spoke at the 86th annual Lawrence County Soils and Crops Conference at the Southwest Area Research Center near Mt. Vernon. Customer demand was down and export markets were limited. In the seven months since he spoke, Brown said the picture has improved remarkably.

"We've seen livestock prices moving higher across the board," Brown told The Times. "July livestock numbers are fewer in both beef and pork. From a supply stock standpoint, we're in real good shape. Supplies are still moving lower, and that's positive for prices."

Brown detailed how dropping supplies would be needed to boost prices, even if demand remained at low levels. Farm incomes have improved somewhat, he said, though the recovery has progressed in spurts rather than in a continuous upswing.

"There are still wild cards," Brown cautioned. "Feed prices are one of them. We're likely to have a good corn crop, but prices are still above historical levels. We expect feed costs to stay high relative to history."

The economic downturn was the worst on record and cut deeply into the pockets of ag producers who may have been operating marginally before the situation worsened. Brown said animal producers were not likely to show much interest in expanding for the next 12 to 18 months. Poultry producers may be the first to pick up the numbers.

"The real question mark is the economy," Brown said. "We have recovery. Some days the news is good, some days it's not. If the recovery continues, it spells nothing but strength for meat prices in the coming months."

The export market has shown definite but tenuous improvement as well. In 2008 nearly half the domestic chicken production went into exports, a large percentage going to Russia. The Russian economy had an even deeper crash than the United States experienced, leaving the average Russian unable to afford foreign chicken.

Brown said the Russians placed restrictions on what would be allowed into the country. Talks have led to new clarity on what the restrictions mean.

"We don't have definitive answers yet. It looks like we will be able to meet the Russian requirements," Brown said.

In positive developments, Brown said beef exports to Korea, a very strong market in the past, have increased throughout 2010. Sales to Japan have picked up at a slower pace, though Brown attributed that to Korean sales having fallen to a lower level and having farther to come back.

"These are very nice increases. It's a positive sign we're getting real recovery to where we were before we were locked out due to BSE (bovine spongiform encephalopathy)," Brown said.

Exchange rates on the U.S. dollar have also helped exports. Brown said the dollar has been weakening against other currencies, making the price of U.S. products more competitive, thus spurring demand.

The dairy situation is a different story. Brown said there has been some price recovery from the third quarter of 2009. Milk prices had fallen below $12 per hundredweight. The price is now $16 per hundredweight, give or take 25 cents either way. Costs are still at break-even levels, which has not improved profitability.

"The supply side of this industry is not slowing down," Brown said. "Supplies are actually expanding, which is coming as a surprise to many of us. That's likely to keep any price increases from happening for the rest of the year. Until supplies go down, it's hard to be optimistic."

Why dairy suppliers have not cut back on their milk output is unclear. Brown said many producers have limited choices. Operations represent huge capital investments, and producers may have to keep the cash flow coming in or get out of the business.

"Improvement in the demand side of dairy in the economic recovery has been helpful," Brown said. "We were not able to see that at the outset."

Brown saw three main concerns for livestock and dairy producers for the rest of 2010.

"Number one is what will the economy do over the next few months? Having a double dip recession is a concern," Brown said. "Secondly, what happens to the current feed crops? Will harvests come at reasonable levels?

"Third, is the unknown, what will be the next real impediment? We've gone through BSE, swine flu and avian influenza. We know there will be something else, something that curtails trade would be pretty tough on us now."



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