Will Next Year Be Better?
Submitted by Editor on Thu, 12/24/2009 - 12:43pm.
Maegan Crandall
Central N.Y. Correspondent
ITHACA, N.Y. — Delinquencies and foreclosures. Record low milk prices. Unemployment topping 10 percent. More bank failures ... 2009 year hasn’t exactly inspired confidence.
Will 2010 look any better?
“I am not yet breaking out the champagne,” said Dr. Steven Kyle, associate professor of applied economics and management at Cornell University.
Indeed, that was the general consensus among the guest speakers this year at the annual agribusiness economic outlook conference. In addition to reminiscing on the economic past and speculating on the economic future, speakers delved into further topics including what financial insecurity means for the agricultural economy, the future of New York agriculture in a carbon constrained economy, and the future outlooks for the dairy sector, specialty crops, grains, fruits and vegetables, the wine industry, and consumer response to various food labeling approaches.
Kyle elaborated further by examining several key components of the economy including real estate, delinquencies and foreclosures, unemployment, inflation, the stock market, and the exchange rate.
“There is still a significant downside to be seen in the real estate market next year. We’re going to see commercial real estate continue to drop. We’re also going to see banks continue to be fragile and we’re going to see additional significant shocks in the housing department,” he said.
In terms of consumer confidence, Kyle points out that we can’t expect consumers to bring us out of this situation anytime soon. Although the consumer confidence index is above the truly awful state it was a year ago, it still is not in great shape.
In terms of economic overall growth, Kyle predicts a rate of somewhere between one and two percent in the next year.
“This is enough for us to not be technically in a recession, but no one is going to feel real good about it and more importantly that’s not a rate of growth that’s going to make much of a dent in unemployment. We should see unemployment to continue to be in the range it currently is. I wouldn’t be surprised to see it get a little worse as we go into 2010, and by the end of the year if we do bottom out and start back up again, it comes back around where it is now. So, call it somewhere around 10 percent a year from now,” said Kyle.
Finally, Kyle predicts that there will be no danger of inflation in 2010, that the stock market will not experience any sustained growth, the dollar will slowly drift downward, and oil prices will continue to maintain current prices.
Dr. Brent Gloy, associate professor of applied economics and management at Cornell, looked more closely at what the current and future financial uncertainty means for the agricultural economy.
“Within the agricultural markets, there is tremendous volatility in commodity prices. Most commodities — not just dairy or hogs which are both having really challenging times presently — are going to experience financial times in the coming year or years. The financial markets are still in a major adjustment. The problem is worldwide and worldwide economic slowdown reduces demand for agricultural products,” said Gloy.
Gloy also discussed how supply and demand figure into the agricultural equation on a global level.
“When we think about demand for agricultural products, we think of two important things —population growth and income. Normally population growth is easy to predict. World income growth also is usually easy to predict. The population of the world is six billion people. 37 percent of that population is held in two countries — India and China. The GDP level by country is a much lower level of income than we have in the United States, but it’s growing much faster. A lot of the world population in countries where income is growing rapidly and that increases demand for agricultural products — in particular animal-based protein. This will have implications for our agricultural crisis,” said Gloy.
On a domestic level, Gloy believes supply is only an issue because of lack of demand.
“In terms of most commodities, we’re not drastically oversupplied — had demand not dropped. Relative to the demand we’re experiencing now, we have a lot of supply,” he said.
Gloy wrapped up by pointing out the need to practice good risk management practices during this poor economic time.
“One of the things that worries me, is when I look back at the agricultural sector over the last ten years it’s been pretty good times by and large. It’s hard for people in the dairy industry to hear that because it’s been really bad recently. But, if you look at the sector as a whole, it’s been pretty good. However a large part of that comes from capital gains. I think those increases seen in the end values should slow going forward. I think credit conditions are still tight and they are going to get worse — particularly dairy and hog sectors — and it’s going to be hard getting credit. Remember the old rule about cash being king. It’s still true. It’s very, very important to have good structure on your balance sheet.” said Gloy.
In terms of the dairy market, Dr. Andrew Novakovic, professor of applied economics and management at Cornell, looked at the current milk economy, and the outlook for 2010.
According to Novakovic, although 2009 was a difficult year for the dairy industry, everything is going in the right direction. Milk production is shrinking, dairy product sales are holding, milk prices are heading up, the general economic indicators are improving, and the international demand for dairy is showing signs of life. However, Novakovic also points out that despite improvements, many indicators are still at very low levels.
Finally, Novakovic suggests that if the CME (Chicago Mercantile Exchange) future prices proves to be correct, the implied average price of milk in New York will begin at about $16.00 per hundredweight and rise to a high of about $17.50. The 2010 average would be about $17.00 per hundredweight.
“On net, it seems certain that the worst is over and 2010 will be more like an average year for farm profitability. By the same token, it is unlikely that 2010 will be the year in which farmers regain equity and reserves lost in 2009,” he said.
For more information visit aem.cornell.edu/outreach/conferences/economic_outlook.htm.
Maegan Crandall
Central N.Y. Correspondent
ITHACA, N.Y. — Delinquencies and foreclosures. Record low milk prices. Unemployment topping 10 percent. More bank failures ... 2009 year hasn’t exactly inspired confidence.
Will 2010 look any better?
“I am not yet breaking out the champagne,” said Dr. Steven Kyle, associate professor of applied economics and management at Cornell University.
Indeed, that was the general consensus among the guest speakers this year at the annual agribusiness economic outlook conference. In addition to reminiscing on the economic past and speculating on the economic future, speakers delved into further topics including what financial insecurity means for the agricultural economy, the future of New York agriculture in a carbon constrained economy, and the future outlooks for the dairy sector, specialty crops, grains, fruits and vegetables, the wine industry, and consumer response to various food labeling approaches.
Kyle elaborated further by examining several key components of the economy including real estate, delinquencies and foreclosures, unemployment, inflation, the stock market, and the exchange rate.
“There is still a significant downside to be seen in the real estate market next year. We’re going to see commercial real estate continue to drop. We’re also going to see banks continue to be fragile and we’re going to see additional significant shocks in the housing department,” he said.
In terms of consumer confidence, Kyle points out that we can’t expect consumers to bring us out of this situation anytime soon. Although the consumer confidence index is above the truly awful state it was a year ago, it still is not in great shape.
In terms of economic overall growth, Kyle predicts a rate of somewhere between one and two percent in the next year.
“This is enough for us to not be technically in a recession, but no one is going to feel real good about it and more importantly that’s not a rate of growth that’s going to make much of a dent in unemployment. We should see unemployment to continue to be in the range it currently is. I wouldn’t be surprised to see it get a little worse as we go into 2010, and by the end of the year if we do bottom out and start back up again, it comes back around where it is now. So, call it somewhere around 10 percent a year from now,” said Kyle.
Finally, Kyle predicts that there will be no danger of inflation in 2010, that the stock market will not experience any sustained growth, the dollar will slowly drift downward, and oil prices will continue to maintain current prices.
Dr. Brent Gloy, associate professor of applied economics and management at Cornell, looked more closely at what the current and future financial uncertainty means for the agricultural economy.
“Within the agricultural markets, there is tremendous volatility in commodity prices. Most commodities — not just dairy or hogs which are both having really challenging times presently — are going to experience financial times in the coming year or years. The financial markets are still in a major adjustment. The problem is worldwide and worldwide economic slowdown reduces demand for agricultural products,” said Gloy.
Gloy also discussed how supply and demand figure into the agricultural equation on a global level.
“When we think about demand for agricultural products, we think of two important things —population growth and income. Normally population growth is easy to predict. World income growth also is usually easy to predict. The population of the world is six billion people. 37 percent of that population is held in two countries — India and China. The GDP level by country is a much lower level of income than we have in the United States, but it’s growing much faster. A lot of the world population in countries where income is growing rapidly and that increases demand for agricultural products — in particular animal-based protein. This will have implications for our agricultural crisis,” said Gloy.
On a domestic level, Gloy believes supply is only an issue because of lack of demand.
“In terms of most commodities, we’re not drastically oversupplied — had demand not dropped. Relative to the demand we’re experiencing now, we have a lot of supply,” he said.
Gloy wrapped up by pointing out the need to practice good risk management practices during this poor economic time.
“One of the things that worries me, is when I look back at the agricultural sector over the last ten years it’s been pretty good times by and large. It’s hard for people in the dairy industry to hear that because it’s been really bad recently. But, if you look at the sector as a whole, it’s been pretty good. However a large part of that comes from capital gains. I think those increases seen in the end values should slow going forward. I think credit conditions are still tight and they are going to get worse — particularly dairy and hog sectors — and it’s going to be hard getting credit. Remember the old rule about cash being king. It’s still true. It’s very, very important to have good structure on your balance sheet.” said Gloy.
In terms of the dairy market, Dr. Andrew Novakovic, professor of applied economics and management at Cornell, looked at the current milk economy, and the outlook for 2010.
According to Novakovic, although 2009 was a difficult year for the dairy industry, everything is going in the right direction. Milk production is shrinking, dairy product sales are holding, milk prices are heading up, the general economic indicators are improving, and the international demand for dairy is showing signs of life. However, Novakovic also points out that despite improvements, many indicators are still at very low levels.
Finally, Novakovic suggests that if the CME (Chicago Mercantile Exchange) future prices proves to be correct, the implied average price of milk in New York will begin at about $16.00 per hundredweight and rise to a high of about $17.50. The 2010 average would be about $17.00 per hundredweight.
“On net, it seems certain that the worst is over and 2010 will be more like an average year for farm profitability. By the same token, it is unlikely that 2010 will be the year in which farmers regain equity and reserves lost in 2009,” he said.
For more information visit aem.cornell.edu/outreach/conferences/economic_outlook.htm.
