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Global Economy Collapse?

00:00AM Oct 09, 2008

Sara Muri
, Top Producer Business & Crops Online Editor
Will the bleak U.S. economic picture spread across the globe? While the total impact of the current economy crunch in the U.S. is still yet to be seen, you are probably wondering how it will affect your farm. Darrel Good, University of Illinois Extension marketing specialist, and Pat Westhoff, FAPRI international affairs program director, provide insight on the unstable economy.
Cause for Concern
"There are many reasons to expect slower global economic growth in the months ahead,” Westhoff says. "Credit problems, stock market declines and reduced home values are all likely to discourage consumer spending. Lower demand for everything from cars to computers to restaurant dinners is likely to slow economic growth in many countries.”
Good agrees. In his weekly outlook remarks, he says substantial concern exists about the implications of the meltdown in U.S. credit markets and how U.S. economic growth affects the rest of the world.
"That concern is reinforced by the sharp decline in stock prices and underlying economic indicators such as unemployment rates and housing starts,” Good says. "Prospects of an economic slowdown threaten the robust domestic and export demand for U.S. agricultural commodities enjoyed the past two years.”
Good and Bad Consequences
Westhoff says the consequences of an economic slowdown are two-fold for farmers. "Lower prices for petroleum and other energy sources would reduce production costs, but they are also likely to lead to lower prices and production of biofuels, with negative impacts on the crop sector,” he says.
In addition, financial institutions could be affected if the Federal Reserve further lowers interest rates, Westhoff says. "That could help reduce borrowing costs for those who obtain credit, but it would also reduce income earned from savings accounts and CDs.”
Good also notes that a global economic slowdown could result in a weaker demand for livestock feed and high-value foods such as meat.
Preparing for the Future
"The problem, of course, is that the extent and magnitude of any economic slowdown and demand weakness for agricultural commodities is not known," Good says.
However, Westhoff says, farmers can help protect themselves by adjusting their business plans. "Risk management is always important, but it is especially critical in times like this,” he says.

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