Agricultural Economics Economic Outlook 2010 Craig Infanger October 2009

Agricultural Economics

Economic Outlook 2010Economic Outlook 2010

Craig Infanger

October 2009

Agricultural Economics

Agricultural Economics

Agricultural Economics

One year after….

Agricultural Economics

One year after….

Agricultural Economics

One year after….

Agricultural Economics

Bailout + Credit Programs + Stimulus = $10T!

Agricultural Economics

Bailout + Credit Programs + Stimulus = $10T!

Agricultural Economics

Bailout + Credit Programs + Stimulus = $10T!

U.S. GDP $14.1 TrillionU.S. GDP $14.1 Trillion

Agricultural Economics

Actual and Projected Federal Budget Surplus and Deficits, FY97-10

Source: CBO

-1600-1400-1200-1000-800-600-400-200

0200400

Fiscal Year

Billions $

Agricultural Economics

Actual and Projected Federal Budget Surplus and Deficits, FY97-10

Source: CBO

-1600-1400-1200-1000-800-600-400-200

0200400

Fiscal Year

Billions $

Agricultural Economics

Actual and Projected Federal Budget Deficits and Debt Held by Public, FY97-12

Source: CBO

-2000

0

2000

4000

6000

8000

10000

12000

Fiscal Year

Billions $

Debt

Agricultural Economics

Has massive intervention worked?

I don’t think anyone fully understands yet how much damage was done to the U.S. economy by the events of September 2008.

Daniel Henninger

WSJ 9-10-09

Agricultural Economics

Working our way past “crisis” mode

Agricultural Economics

Focus shifts to local real estate markets and smaller banks

100100

Agricultural Economics

Worst recession since WWII

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0Annualized percent change

Quarterly U.S. Real Gross Domestic Product Growth

Source: Bureau of Economic Analysis

Agricultural Economics

Worst recession since WWII

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0Annualized percent change

Quarterly U.S. Real Gross Domestic Product Growth

Source: Bureau of Economic Analysis

Agricultural Economics

Worst recession since WWII

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0Annualized percent change

Quarterly U.S. Real Gross Domestic Product Growth

Source: Bureau of Economic Analysis

Agricultural Economics

What kind of recovery can we expect?

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0Annualized percent change

Quarterly U.S. Real Gross Domestic Product Growth

Source: Bureau of Economic Analysis

V, U, or W?

Agricultural Economics

What kind of recovery can we expect?

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0Annualized percent change

Quarterly U.S. Real Gross Domestic Product Growth

Source: Bureau of Economic Analysis

Square Root?

2% - 3%

Agricultural Economics

What kind of recovery can we expect?

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Annualized percent change

Quarterly U.S. Real Gross Domestic Product Growth

Source: Bureau of Economic Analysis

Bathtub?

Agricultural Economics

Unemployment: Jobless Recovery Again?

-1500

-1000

-500

0

500

1000

Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08

0

1

2

3

4

5

6

7

8

9

10Change from previous month (Thousands)

Job Change(Left Scale)

Unemployment Rate(Right Scale)

Source: Bureau of Labor Statistics

Change in Payroll Employment and Unemployment Rate

Percent

Jan. = -1,239,000 Jan. = -1,239,000 Total Job Loss = >7mTotal Job Loss = >7m

Agricultural Economics

Unemployment: Jobless Recovery Again?

-1500

-1000

-500

0

500

1000

Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08

0

1

2

3

4

5

6

7

8

9

10Change from previous month (Thousands)

Job Change(Left Scale)

Unemployment Rate(Right Scale)

Source: Bureau of Labor Statistics

Change in Payroll Employment and Unemployment Rate

Percent

125,000125,000

Agricultural Economics

“Jobless recovery” is not good news for rural Kentucky

• Kentucky’s 85,000 farms are dependent on off-farm jobs.

• >35,000 principal operators worked 200+ days off the farm.

• Current KY unemployment rate = 11%.

• About 3,000 - 6,000 “commercial farms” which account for 74% of all agricultural gross receipts.

Agricultural Economics

Percent change from a year ago

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Inflation disappears as an economic issue

Core CPI

CPI: All Items

Source: Bureau of Labor Statistics

Consumer Price IndexCPI: All Items Core CPI

Agricultural Economics

Two of the reasons inflation is low…

Agricultural Economics

Two of the reasons inflation is low…

Agricultural Economics

U.S. economic outlook for 2010U.S. economic outlook for 2010 ►Slow growth for U.S. & KY. Recession may be “over” but we face jobless recovery.

►Financial system appears stabilized and housing prices have begun recovery.

►Face serious debt service issues that will be drag on economic growth as interest rates rise.

Agricultural Economics

U.S. Agriculture in a Chaotic EconomyU.S. Agriculture in a Chaotic Economy

Agricultural Economics

U.S. Net Farm IncomeMajor decline as prices & exports drop but costs rise

0

20

40

60

80

100Billion Dollars

Net Farm Income Govt PaymentsSource: ERS/USDA

*

*estimated

’00-’09 average: $63 B -38%

Agricultural Economics

U.S. Agricultural TradeSituation as of Fall 2008…

-100

-50

0

50

100

150

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08p '09

Exports Imports Trade Balance

Billion $

Source: USDA, ERS; fiscal year ending 9/30; p = preliminary

?

Agricultural Economics

U.S. Agricultural Trade1999-2010

-100-80-60-40-20

020406080

100120

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09p'10f

Exports Imports Trade Balance

Billion $

Source: USDA, ERS; fiscal year ending 9/30; p = preliminary f = forecast

▪Lower grain prices & volumes = 2/3 of drop in exports

▪ Exports stabilize in ’10 as dollar weakens, global economy improves

▪Food imports return to record-high as economy recovers

▪Trade surplus only $15B

Agricultural Economics

KY Cash Receipts and Net IncomeRecord high in 2008; sharp drop for 2009

0

1

2

3

4

5

6

Cash Receipts

Net Farm Income

$1.37B

$ billion

$3.93B

Agricultural Economics

22.30%

19%13.50%

11.90%

7.90%

7.70%

Horses

Poultry

Corn

Cattle

Soybeans

Tobacco

Big 6 = 82% Cash Sales, ‘08

Agricultural Economics

Lower farm income affects land prices

Source: USDA, NASS

Agricultural Economics

Lower farm income affects land prices

Source: USDA, NASS

Agent Survey 2008

Agricultural Economics

Climb in land values stops (pauses?)

Source: USDA, NASS

Agricultural Economics

Farm Balance Sheet Strong

Source: USDA, ERS

Agricultural Economics

• Impact of global recession on agriculture now clear – lower exports, prices & income.

• Global recovery holds promise for improved environment in 2010.

• KY agriculture will continue to feel the recession-like conditions into 2010.