Based on major financial indices, there is growing consensus that the Great Recession has ended and global economic recovery is beginning. The Dow Jones Industrial Average, for example, started December at its highest level in 14 months.
According to last week’s “Outlook for U.S. Agricultural Trade” (OUSAT) from USDA’s Economic Research Service, annualized third-quarter gross domestic product (GNP) growth was 3.5% in the U.S. However, USDA’s estimates also indicate the U.S. economy contracted 2.5% in 2009. Globally, emerging Asian economies are leading the economic recovery.
“Over the past two years, our nation, indeed the world, has endured the most severe financial crisis since the Great Depression, a crisis which in turn triggered a sharp contraction in global economic activity. Today, most indicators suggest that financial markets are stabilizing and that the economy is emerging from the recession.” That’s what Federal Reserve Chairman Ben Bernanke said in U.S. Senate testimony last week.
Wall Street’s volatile rollercoaster ride to its highest level in more than a year suggests that while the news of a recovery may be true, investors have little conviction that the road to recovery has begun in earnest. It seems that any negative financial news outweighs exponentially more positive news.
In other words, Bernanke explained in a speech to the Economics Club of New York last month, though financial conditions have improved considerably in recent months, significant challenges remain.
“On the one hand, those who see further weakness or even a relapse into recession next year point out that some of the sources of the recent pickup – including a reduced pace of inventory liquidation and limited-time policies such as the ‘cash for clunkers’ program – are likely to provide only temporary support to the economy,” Bernanke said. “On the other hand, those who are more optimistic point to indications of more fundamental improvements, including strengthening consumer spending outside of autos, a nascent recovery in home construction, continued stabilization in financial conditions, and stronger growth abroad.
“My own view is that the recent pickup reflects more than purely temporary factors and that continued growth next year is likely. However, some important headwinds – in particular, constrained bank lending and a weak job market – likely will prevent the expansion from being as robust as we would hope.”
According to OUSAT, “The world recovery in 2010 will come with a modest contribution from the EU and Japan. Asia, North America and Latin America need to have sufficient liquidity to finance international trade for trade volumes to increase enough to support the modest world growth expected in 2010. For the U.S at least, job expansion is expected to be sluggish, adding risk to expected consumer spending growth.
“Given the severity of the recent recession, U.S. businesses will be less likely to add workers until they see a large and sustained rise in product demand. If U.S. consumers increase their saving too rapidly or credit tightens, the fragile recovery expected in 2010 could derail and possibly spill over into the rest of the world,” OUSAT says.
With that in mind, ERS analysts forecast U.S. beef exports to be $200 million higher in 2010 as tighter global beef supplies help boost North American prices, along with recovering Asian demand.
As Randy Blach, CattleFax executive vice president, recently told participants of Texas Cattle Feeders Association annual meeting, "We still aren't back to the same levels of beef exports that we were pre-BSE. We were exporting 2.5 billion lbs. in 2003. We're going to be lucky to be at 1.8 to 1.9 billion lbs. this year.” If U.S. beef was operating under the same trade protocols with Japan as it is with South Korea, he adds, "it would be worth another $60-$70/head across our fed-cattle market."