OT - impending collapse of the US ag economy

greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread

This may appear overtly "off topic" to some. However, it does indicate pricing trends for bulk raw commodities purchased for preparation. The current crisis in ag also portends an instability in domestic food production, even without the effects of y2k. It supports suspicions, (born out locally,) that producers are stressed and not focussing at all on remediation. (They do have many embedded system issues.) It also indicates the growing trend of greater future dependancy upon ag imports at a time when y2k will hit hardest on the international level.

I am keeping my fingers crossed that the survival rate into the next season of small domestic ag producers hardest hit by these trends will be good. Should y2k disruptions occurr in transportation, etc - the more small producers that are widely dispersed locally throughout the country, the better.


http://www.fb.com/news/nr/nr99/nr0708a.html Backgrounder: The General Economy vs. the Farm Economy

PARK RIDGE, Ill., July 8, 1999 -- The American economy has flourished during the decade of the 1990s, growing an average of 5.1 percent each year. Farmers and ranchers, on the other hand, have been on an economic roller coaster during the decade. The ride has been all downhill since 1998, when commodity prices tumbled to the lowest point in the last 30 years, and farmers felt the full impact of the Asian economic slowdown and increased competition from other exporters.

During the 1990s, corporate pretax profits increased by 130 percent, from $380 billion in 1989 to a projected $875 billion in 1999. Farmers and ranchers have been left out of the growth market, as net cash farm income (gross cash income minus cash expenses) in the 1990s is expected to increase a miniscule 7.4 percent, from $52.8 billion to a projected $56.7 billion in 1999.

In 1999, direct government payments to farmers will be $6.9 billion higher than the average of 1994 to 1997. Remove the additional $6.9 billion from the mix, and net cash farm income in 1999 would actually be $3 billion lower than in 1989.

Since 1989, the overall American economy, as measured by the Gross Domestic Product index, has grown by nearly 65 percent, from $5.4 trillion in 1989 to an expected $9 trillion in 1999. During that same time span, Gross Farm Income has experienced a modest 14.9 percent increase. In 1990, gross cash income on farms was $186.9 billion. In 1999, that number is projected to be $219.7 billion.

The Gross Cash Income figure in 1999 (a projected $219.7 billion) is $8.3 billion less than 1997's figure (a decade-high $228.0 billion).

Personal income in the 1990s soared 67 percent, from $4.5 trillion in 1989 to an estimated $7.5 trillion in 1999. Net Farm Income in 1989 was $45.3 billion. In 1999, that number is projected to be $45.1 billion, an actual decline.

Commodity Prices

Farmers have felt the brunt of steadily declining prices for the past three years, with prices for virtually every commodity trending steadily downward. While prices generally are expected to bottom out for most commodities in 1999, there is little evidence to suggest that commodity market prices will move appreciably higher over the next 12 to 18 months.

Wheat prices have declined from their 1995 marketing year average high of $4.55 per bushel to $2.65 for the 1998 marketing year that ended this May 31. The average price for the 1999 crop now being harvested is expected to be lower at an average $2.60 per bushel, or 43 percent below the 1995 average.

Corn prices have declined from their 1995 marketing year average high of $3.24 per bushel to $2-a 41 percent plunge-for the 1998 marketing year that this August 31. Projections show that corn prices will likely average less than $2 for this marketing year, if favorable growing conditions continue over the next few weeks.

Soybean prices averaged $7.35 cents per bushel in 1996, but will likely average $5 per bushel for the 1998 marketing year ending August 31. The average for the 1999 marketing year is expected to dip to around $4 per bushel-39 percent less than in 1996  if good growing conditions continue into August.

Cotton prices averaged 75.4 cents per pound in the 1995 marketing year. But despite an extremely short 1998 crop, the average price continued to decline to 61.5 cents per pound. Cotton producers likely won't see relief this year, with the price expected to drop further to 52 cents per pound. That is a 31 percent decline from the 1995 cotton price.

Rice prices have declined from $10 per hundredweight in 1996, to an expected $8.65 for the 1998 crop marketing year that ends on July 31. Rice prices are expected to take another sharp drop in the 1999 marketing year to an average of $6.50-35 percent below 1996 prices.

Milk prices have been strong in recent years compared to grain and cotton. Milk market prices averaged $14.94 per hundredweight in 1996 and topped out at about $15.60 in 1998. Prices are expected to decline to about $13.75 for 1999.

Hog prices have declined sharply and appear to be in an extended slump. After averaging $53.51 per hundredweight in 1996 and $51.39 per hundredweight in 1997 for Iowa and southern Minnesota cash markets, prices dropped to $31.76 per hundredweight in 1998. They are expected to average $30 per hundredweight in 1999 and recover to only $34 per hundredweight in 2000-still below the cost of production.

In 1998, fed cattle had their lowest average yearly prices of the decade, averaging $61.84 per hundredweight on the cash market at Dodge City, Kansas. Prices are expected to recover some this year to average about $65 per hundredweight. They should continue to recover in 2000 and average about $72.

Soybean futures prices recently sank to a 26-year low. Wheat prices are at a 21-year low and corn prices haven't been this low in nearly a decade. Cotton prices are at a 13-year low.

Agricultural Trade

After peaking at $59.8 billion in fiscal year 1996, agricultural exports have experienced three straight years of decline. The export estimate for 1999 is $49 billion. This drop has been caused by a decline in demand in Asia, coupled with low commodity prices, especially in bulk commodities.

Asia's faltering economy is a main factor for the decline in agricultural exports during the past three years. In 1996, U.S. ag exports to Asia (including bulk, intermediate and consumer ag products) totaled $28.6 billion. This year, the number is estimated to be at $16.8 billion. Asia's share of U.S. agricultural exports has declined from 49 percent in 1996 to 34 percent in 1999.

Total bulk commodities to all countries (such as corn, wheat, soybeans, cotton and rice) have taken the biggest export hit. The value of these exports has declined from $28.9 billion in 1996 to an expected $18.2 billion in 1999, a 37 percent drop. Lower market prices are a factor in this sharp decline.

Intermediate processed products such as soybean oil, processed feeds, hides, planting seeds and sweeteners have declined modestly since 1997 (from $12.6 billion in 1997 to a projected $11.2 billion in 1999).

Consumer-oriented agricultural products such as meats, fruits and vegetables also declined slightly, from $21.1 billion in 1997 to a forecasted $19.6 billion in 1999.

Not all news is bad on the export market front, but the positive facts aren't enough to make a dent in the ominous economic outlook for America's food producers:

Soybean export volume is likely to grow, but value will be down due to sharply lower prices;

Fruit and vegetable export growth has leveled off, but has not suffered a decline;

Red meat exports have continued to grow in volume, but dollar value has declined because of low beef and pork prices.

-- marsh (siskfarm@snowcrest.net), July 15, 1999


The result can be seen every weekend in farm country --- "going out of business" auctions of individual families.

This is a very deflationary environment. Prices are lowered, people are forced to move elsewhere to search for jobs, and are out of work until they find them. Agricultural is rapidly becoming the domain of the Archer Daniel Midland corporations, who will survive any way possible, including some ways that might not be beneficial long term.

Basically, this is an imported deflation. Prices started going down when Asia went into the tubes a couple of years ago and stopped buying our grain. Until that time the rising standard of Asian living had raised diet levels, especially providing meats and grains that they had not been accustomed to. The beneficiary was the US because we have have had the ability to feed much of the world. Now, with their economic troubles, they don't buy, and prices have sought a much lower level.

It's good for those who are storing grains against y2k or other emergencies, not so good for our future.

-- de (delewis@Xinetone.net), July 15, 1999.

Maybe the following disaster will help increase prices. From the Electronic Telegraph:

http://www.telegraph.co.uk:80/et?ac=000154642417163&rtmo=lSQkuA7t&atmo =99999999&pg=/et/99/7/15/wbul15.html#go2

Plague of locusts puts Russian harvest at risk

RUSSIAN farmers are fighting a disaster of Biblical dimensions: an invasion of locusts threatens to destroy this year's already poor harvest. Over the past week the locusts, travelling at 30 miles a day, have been swarming north from Kazakhstan to invade 23 crop-growing regions of Russia.

The sheer number of the pests, which have bred exceptionally fast during the unusually hot summer, has caught the government on the hop. The Agriculture Ministry has only a third of the amount of insecticide needed to deal with the invasion.

In the worst areas there are 400 to 500 insects per square yard and the farmers have been able to treat only 1,000 square miles out of nearly 6,000 square miles affected. The Novosibirsk region has declared a state of emergency. Ben Aris, Moscow

-- Old Git (anon@spamproblems.com), July 15, 1999.

To save money on y2k preparation, buy directly from a farmer. How to find a farmer:

1. Go to a farmers market.

2. Call your local county extension office (probably listed in the blue page government listings, sometimes associated with a state university, i.e. "oklahoma state university extension". Many state extension depts have web pages, so you could try a web search.

3. Look in the classified ads of the newspaper.

Robert Waldrop http://www.justpeace.org/printflyers.htm

-- robert waldrop (rmwj@soonernet.com), July 15, 1999.

I watched the morning news and there was a report about average farm income was only $6,000 for 1998 and was expected to be 30% lower for 1999. How long could you stay in business? The only help the government is offering right now are farm LOANS and those are to hog producers (usually factory farms). Now if you have very little income how are you going to re-pay those loans????

We farm, but it is not our primary means of income. Because we work off the farm, we do not qualify for any government help and yet we are the ones that could re-pay loans. Does anyone else wonder about this logic?

I hate seeing the corporate farms come in and unfortunately I am beginning to wonder if our government has a hidden agenda to run the families off the farm to the benefit of the larger corporations?

If the family farms goes down the tubes, you WILL be paying much higher prices for food and our food supply will be much more at risk.

-- Beckie (sunshine_horses@yahoo.com), July 15, 1999.

There is a curious parallel here to what happened during the "Roaring 20's" this was also a time of depressed farm prices. History repeating itself?

-- Sure M. Worried (SureMWorried@about.Y2K.coming), July 15, 1999.

Following the roaring twenties and with the Great Depression, the federal government got its hooks into ag price controls under the claim of an "emergency." The so called "parity" movement actually seeks to evoke these old EOs to interject federal commodity price control to elevate prices to the level of manufactured goods and to support foreign currencies so that international competition remains equitable. With the State of California working on bolstering its own emergency powers, I wonder how ag will fair in the mix. Rationing? Price controls?

By nature, Ag producers own more property than any other group in the United States. We already have state controlled land use in the form of zoning, set asides, easements, "best management" practices, various environmental regulations and mitigations. Ag has one giant foot in the grave of either socialist control of private land use or facism in the corporate assimilation of the family farm. In the current economic crisis, y2k may be the excuse to push it over "for the public good"

-- marsh (armstrng@sisqtel.net), July 15, 1999.

Moderation questions? read the FAQ