Agriculture Roller Coaster
Oct 15, 2010
Riding the agriculture economy roller coaster can be exciting, hopeful, and sometimes scary. Prices are up. Prices are down and then back up. The weather is completely out of our control. Too hot. Too cold. Too wet. Too dry. The level of uncertainty exceeds most any other business.
However, right now the situation looks good. The farm economy is on a roll. Net farm income is projected to surge 24% this year to $77 billion, the fourth highest on record.
The global demand for what we produce is strong. The Asian economies are growing 3 times as fast as our own, and they want our pork, poultry, corn, cattle, and cotton.
The farm and rural economy is stronger than much of the rest of the country. The farm debt to asset ratio is an enviable 13%.
I was in a luncheon this week where Dan Glickman, former Secretary of Agriculture for President Bill Clinton, spoke. He reinforced the position for agriculture. “We need to double food production in the next 40 years, and we need to do it without any big increase in acres.” That’s our challenge.
To further increase demand for our production and acres, the EPA is opening the door to allow 15% ethanol in our fuel for cars sold after 2006. On top of that, the USDA cut this year’s corn yield projection for the second time, which is inflating corn prices. The rising price of corn and other grains presents a challenge as well as an opportunity:
- The “corn versus fuel” conflict may become an issue like it was in 2008. In fact, you can expect to hear from livestock producers and food processors about this added cost.
- Food price inflation could become a concern. However, few economists expect us to experience the 5% jump in food prices we experienced in 2008. Most are expecting a modest 1% or 2%.
This year’s crop is worth more than we had expected, and if the weather will cooperate, we are in a position to produce a big crop next year. And it is going to be worth a lot of money. The farm economy and rural economy that go hand in hand are positioned to “let the good times roll.”
We ride this roller coaster year after year. We go up. We go down. Hold on because now we are ready to go up.
In closing, I would encourage you to access my website which archives my radio commentaries dating back 10 years and will go back 20 years when complete. Check on what I said back then. Go to www.johnblockreports.com
Until next week, I am John Block in Washington.