Global Economy Emerges as Growing Concern

October 17, 2011 08:42 AM

Recession in Europe and the U.S. is becoming a strong possibility, which could have global spillover, potentially affecting agriculture. In developed economies, a recession will not reduce overall food consumption, but it may reduce how much meat consumers eat, thus dampening feed demand.

The real impact, though, could be on developing economies that have been rapid growth markets for grain and oilseeds from the U.S., says Pat Westhoff, director, Food and Agricultural Policy Research Institute at the University of Missouri. A slowdown in developed economies could reduce the growth in markets for developing nations, most notably China, at least at the margin. That said, China’s economy is still expected to show rapid growth in the year ahead. Furthermore, China has tight domestic grain stocks and may turn more to exports for feed for its 460 million hogs.
The slowdown in the global economy is nonetheless a concern as many experts are forecasting a slowdown both here and abroad. “The global economy is in a dangerous new phase,” says a World Economic Outlook released by the International Monetary Fund in late September. “Global activity has weakened and become more uneven, confidence has fallen sharply recent, and downside risks are growing.”
The IMF predicts that the U.S. economy will grow by only 1.5% in 2011 and 1.8% in 2012. This compares to 3% in 2010. China’s economy, by comparison, is still predicted to grow at a rapid rate, 9.5% in 2011 and 9% in 2012, though those rates are below the 10.3% of 2010. Japan is forecast to show a negative 0.5% growth in 2011 and 2.3% growth in 2012, compared to a 4% growth in 2010. And the troubled Euro area (Germany, France, Italy and Spain) is forecast to show a 1.6% growth in 2011 and 1.1% growth in 2012. IMF has reduced growth projections by all regions and countries from its June forecasts, illustrating just how rapidly key regions are slipping towards recession.
A less robust global economy could also cut crude oil prices by as much as $10/barrel. This, in turn, could reduce ethanol demand, prices and demand by that sector for corn, says Corinne Alexander, ag economist at Purdue University. But Iowa State University Chad Hart is not all that concerned about ethanol, however, because plants are operating at capacity, and even if ethanol prices fall, they will be falling in concert with corn prices, thus plant profitability should remain the same.
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