Global Economy, Recovery, Global Economy, Recovery, and Linkage to Agriculture and Linkage to Agriculture Kevin Bernhardt Kevin Bernhardt UW-Extension and Center for Dairy Profitability UW-Extension and Center for Dairy Profitability October 2009 October 2009
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Global Economy, Recovery, and Linkage to Agriculture Kevin Bernhardt UW-Extension and Center for Dairy Profitability October 2009.
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Global Economy, Recovery, and Global Economy, Recovery, and Linkage to AgricultureLinkage to Agriculture
Kevin BernhardtKevin BernhardtUW-Extension and Center for Dairy ProfitabilityUW-Extension and Center for Dairy Profitability
October 2009October 2009
World Situation to Farm IncomeWorld Situation to Farm Income2
• If the value of the U.S. dollar is comparatively low then that gives our trading partners more money to buy U.S. stuff– Leads to increased demand for U.S. exports– As U.S. exports increase so does U.S. prices
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A Global Impact that affects U.S. A Global Impact that affects U.S. Ag Prices is the exchange value Ag Prices is the exchange value
• Imbalance of trade, investment, and savings between trade surplus countries (China) and trade-deficit countries (U.S.).– U.S. has been at the party too long
Spending instead of saving and investing Running up debts on low interest rates Irrational Exuberance (aka: stupidity)
– Morning/Hangover came in 2nd half of 2008 Likely continue until the end of 2009 first half of 2010.
• Hit 1: Crisis was worldwide causing a fall in incomes and thus a fall in demand
• Hit 2: The U.S. while hit hard still had a stronger position than much of the rest of the world and thus the dollar actually strengthened– Causing U.S. products to be more expensive
• Do we rebalance exchange rates, savings, investment, and trade re-alignment that puts the world on a more sustainable economic growth path.– Good for the U.S. in the long run– A step back for the trade surplus countries
(China) that have been supplying the party.
35
World Situation to Farm IncomeWorld Situation to Farm Income36
World Income
World Currency Exchange
Rates
Flow of Agricultural
Imports & Exports
Energy Demand
and Prices
Biofuel Demand
and Prices
Demand for biofuel raw
material (corn)
Agricultural Commodity
Prices & Production
Demand for U.S. Products (Exports)
Farm Income
What the 2008/2009 WorldWhat the 2008/2009 WorldEconomic Crisis Means forEconomic Crisis Means forGlobal Agricultural TradeGlobal Agricultural Trade
August 2009 Report by the Economic Research Service
• Know and use marketing tools and strategies Remember, It’s the Margin That Counts
• Farm Programs
• Insurance Instruments– LGM-Dairy, Crop insurance – Levels of coverage
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• Strategies for Down Times– Flexible Lease Arrangements– Defer Capital Expenditures– Defer Income Taxes– Refinance long-term obligations– Borrowing against Equity capital, but with planned
repayment– Compare financing rates
Careful: one needs committed friends in down times
86
Source: Edwards, William. “Managing through a recession: options for farm operators. Ag Decision Maker, Iowa State Extension
• Aligned/Cooperative Business Structures
• Value-Added, Branded Products– Not less risk, just different
• The Oil Drum: http://www.theoildrum.com/story/2006/10/5/215316/408• Association for the Study of Peak Oil: http://aspo-usa.com/ • Oil Market Report: http://omrpublic.iea.org/ • Now and Future: http://www.nowandfutures.com/index.html • WTRG Economics: http://www.wtrg.com/ • World Bank Group: http://ddp-ext.worldbank.org/ext/DDPQQ/member.do?method=getMembers• Farm Foundation: http://www.farmfoundation.org/ • USDA Economic Research Service: http://www.ers.usda.gov/ • Trading Charts, Inc: http://futures.tradingcharts.com/ • CHOICES: http://www.choicesmagazine.org/magazine/issue.php • Foreign Agricultural Service: http://www.fas.usda.gov/default.asp • University of Illinois Farmdoc website: http://www.farmdoc.uiuc.edu// • Iowa State University Ag Decision Maker: http://www.extension.iastate.edu/agdm/ • University of Wisconsin, Center for Dairy Profitability: http://cdp.wisc.edu/ • University of Minnesota Center for Farm Financial Management: http://www.finbin.umn.edu/ • International Monetary Fund, World Economic Outlook database:
• Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices. USDA/ERS, July 2008. http://www.ers.usda.gov/Publications/WRS0801/
• Bahn, Henry. “Commodity Prices Rock World Markets: Structural Shift or Short Term Adjustments?” Choices, AAEA, 2nd qrt 2008 23(2). http://www.choicesmagazine.org/magazine/issue.php
• Westhoff, Pat. “Farm Commodity Prices: Why the Boom and What Happens Now?” Choices, AAEA, 2nd qrt 2008 23(2).
• Lawrence, John D., James Mintert, John D. Anderson, and David P. Anderson. “Feed Grains and Livestock: Impacts on Meat Supplies and Prices.” Choices, AAEA, 2nd qrt 2008 23(2).
• Irwin, Scott H., Philip Garcia, Darrel L. Good and Eugene L. Kunda. “Recent Convergence Performance of CBOT Corn, Soybean, and Wheat Futures Contracts.” Choices, AAEA, 2nd qrt 2008 23(2).
• Mark, Darrell R., B. Wade Brorsen, Kim B. Anderson, and Rebecca M. Small. “Price Risk Management Alternatives for Farmers in the Absence of Forward Contracts with Grain Merchants.” Choices, AAEA, 2nd qrt 2008 23(2).
• Abbott, Philip C., Christopher Hurt, and Wallace E. Tyner. “What’s Driving Food Prices?” Issue Report from the Farm Foundation, July 2008. http://www.farmfoundation.org/news/templates/template.aspx?articleid=404&zoneid=26
• Fortenbery, T. Randall and Hwanil Park. “The Effect of Ethanol Production on the U.S. National Corn Price.” Univ. of WI-Madison Dept. of Ag and Applied Econ: Staff Paper no. 523, April 2008.
• Irwin, Scott. “Crop value and volatility in a new era” 2008 Illinois Farm Economics Summit, http://www.farmdoc.uiuc.edu//presentations/index.asp .
• Schnitkey, Gary. “Prospects for Crop Production Costs” 2008 Illinois Farm Economics Summit, http://www.farmdoc.uiuc.edu//presentations/index.asp .
• Schnitkey, Gary. “Farm Economics Facts & Opinions”, Department of Agricultural and Consumer Economics, College of Agricultural, Consumer, and Environmental Sciencds, university of Illinois at Urbana-Shampaign, FEFO 08-13, July 11, 2008.
• Duffy, Michael, and Darnell Smith. “Estimated Costs of Crop Production in Iowa- 2009,” Ag Decision Maker, Iowa State University, University Extension, FM-1712 Revised, December 2008.
• Duffy, Mike. “Estimating costs of crop production for 2009,” Ag Decision Maker Newsletter, Iowa State University, University Extension, January 2009