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Economic Recovery Slow, But In The Right Direction

“The livestock sector can lead the agricultural economy to higher net farm income, assuming the farm economy benefits from a recovering general U.S. economy,” say analysts with

“The livestock sector can lead the agricultural economy to higher net farm income, assuming the farm economy benefits from a recovering general U.S. economy,” say analysts with the University of Missouri Food and Agricultural Policy Research Institute (MU FAPRI).

In fact, according to the organization’s recent 10-year agricultural baseline projections, they anticipate net farm income to increase over the next two years, largely because of stronger livestock prices.

“If jobs and consumers return, the agricultural sector will benefit,” says Pat Westhoff, MU FAPRI co-director. “Higher incomes increase the demand for food, feed, fiber and fuel, supporting farm commodity prices.”

For perspective, Westhoff explains net farm income plummeted more that $30 billion in 2009 as modest declines in production costs were overwhelmed by sharp declines in cash receipts. UM FAPRI analysts project net farm income to recover about a third of the ground lost last year.

As consumers worldwide continue extricating themselves from the financial wreckage left by the recession, goliath-sized question marks loom about how fast the recovery can be.

“The recovery is going to take quite some time to bring us back to where we really want to be,” explains Larry DeBoer, Purdue University ag economist. “We should probably expect a slow decline in the unemployment rate and probably slow growth rates of gross domestic product."

DeBoer says U.S. consumer spending is being held back by the 10% unemployment rate. The economy grew 5.9% in the fourth quarter of 2009, but economists question whether that growth rate can be sustained.

“Even at 5.9%, the unemployment rate would only come down from about 10% to about 8.5% by the end of the year,” DeBoer says. “This tells me we have at best three or four years before we get unemployment back down to 5% where it was at the beginning of the recession.”

Incidentally, with a 10% unemployment rate and little threat of inflation, DeBoer says it's unlikely the Federal Reserve will increase interest rates soon. However, he adds that farmland assessments are likely to increase in the near future because the formula to assess farmland value takes into account commodity prices with a four-year lag.

Reflecting on the recent surge in wholesale beef prices, John Michael Riley, Mississippi State University Extension ag economist, pointed out last week that the recent rally in the wholesale beef market appears to be mostly a supply-driven phenomenon at this point. Since the first week of February, beef production has been consistently lower than year-earlier levels, suppressed largely by the impact of very poor weather that has sharply reduced cattle weights and, in some weeks, made delivery of market-ready cattle difficult. So, while the supply side of the market has been definitely supportive of prices, the impact of the demand side has been less clear, he says.”

As the economy recovers, beef demand should strengthen, says Scott Brown, FAPRI livestock economist. This, combined with tight beef supplies for the next few years, can return profits to the beef industry.