Bankers: Ag Sector Trending Toward Recovery

2/23/2013 7:00 AM
By Sue Bowman Southeastern Pa. Correspondent

LEBANON, Pa. — If the agricultural financial experts at Fulton Bank’s 34th annual luncheon seminar last week were weather forecasters, their predictions might be characterized as “fair and getting warmer.”

Although none of the experts who spoke to the 435 farmers at the Lebanon Valley Expo Center could tout the current round of economic recovery as “robust,” all seemed to agree that the ag sector is trending in the right direction and ahead of many other segments of the recuperating U.S. and world economies.

“I have a very high degree of confidence that we’ve hit bottom,” said David Hanson, CEO of Fulton Financial Advisors and Clermont Wealth Strategies. “The private sector is doing OK. Most of the things preventing a robust economic recovery are happening down around Washington, D.C.”

“Potomac paralysis” is the term he used to describe the slow rate of recovery.

“If D.C. can get out of our way, we can have a reasonably good recovery, though not to the 1990s level,” Hanson said.

James W. Dunn, professor of agricultural economics and rural sociology at Penn State University, echoed Hanson’s comments, saying he was disappointed with the languishing Farm Bill, which has been blocked in the U.S. House, and the possibility of a sequestration of agricultural funding.

Talking about the outlook for dairy in the coming year, Dunn said that, while milk prices recovered at the end of 2012, they have drifted down somewhat since then.

He said he expects that trend to reverse after the next few months and then remain relatively stable for the remainder of the year. Dunn predicted that Pennsylvania’s all-milk price for 2013 will be around $21.35 per hundredweight, compared with $20.03 in 2012.

Talking to a crowd that included many dairy farmers, Dunn said that, with per capita milk consumption in the U.S. declining coupled with a slowdown in population growth, any increase in dairy income will likely come from exports rather than domestic sales.

That has already been happening, according to a presentation by John Frey, executive director of the Center for Dairy Excellence, who pointed out that there has been an 18 percent increase in U.S. milk production since 2003, with 56 percent of that growth coming in the form of exports to places like China.

Frey said there is research showing that meeting China’s goal of 8 ounces of milk per child per day would require 63 million cows with the Chinese style of dairying.

Producing that same quantity in the U.S. could be done with 24 million cows, he said, and since there are only 9 million cows in the U.S. at present, the growth potential for export to China is clearly evident.

According to a survey of dairy farmers, Frey said, increasing the viability of Pennsylvania’s dairy farms hinges on maximizing homegrown feed and milk prices, while decreasing the cost of production and stabilizing dairy prices.

Increasing herd size was also a consideration, he said, but not one given a high priority.

Nevertheless, Frey pointed out that there is a correlation between getting more milk per cow and herd size. The average net income per cow per year in Pennsylvania is $400, while the state’s largest dairies more than double that number with an average income of $850 per cow.

Although the amount of milk per cow is a critical driver of profitability; Frey added the caveat that, “Getting better is essential. Getting bigger is optional.”

Taking up the theme as it applies to grain prices, H. Louis “Lou” Moore, former Penn State professor of agricultural economics and rural sociology, illustrated his talk with a map showing the extent of this year’s drought.

“If you’re a farmer, you pray for drought — somewhere else,” he said.

Moore pointed out that, regardless of the drought, corn usage has been heavy, with minimal carryover, which he attributed to the growing production of ethanol.

In 2004, about 12 percent of the corn crop went to ethanol production, he said, compared with 40 percent in 2012, and that growth has created a competition that has bumped up feed prices.

One result has been the smallest U.S. beef herd since 1952 despite higher feeder cattle prices. Moore posited that, if grain prices were lower, the beef industry would be in the midst of a huge expansion.

Joining the chorus in criticizing government gridlock was John Blanchfield, senior vice president of the American Bankers Association’s Center for Agricultural and Rural Banking in Washington, D.C.

“There’s not a lot of love in Washington right now,” he said.

Blanchfield went on to predict that the federal deficit and debt will continue to dominate politics for a long time to come.

He also said, “There’s little urgency to finish the Farm Bill in 2013. It’s not a hot issue.” And he urged those in attendance to contact their legislators to push them toward taking action on the bill.

Blanchfield emphasized the value of federal crop insurance, noting that, even with the biggest drought in years plaguing the Midwest and other areas of the country, there was only a slight dip in agricultural income.

He credited crop insurance with saving a lot of farms in 2012 and predicted there will be an increase in premiums.

With the agricultural segment of the economy doing so well, there are “a lot of people who want to lend to ag right now,” Blanchfield said, advising his listeners to take care to know who they’re dealing with and “stick with who you know.”

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