Economist Bill Helming says he's “generally bearish” on the overall U.S. economy and expects it to suffer “a serious and painful recession” within the 2008-2009 time period. But he's “generally bullish” on the overall agricultural economy and commodity markets over the same period.
In fact, where agriculture is concerned, the Olathe, KS-based agribusiness consultant unabashedly proclaims, “The golden age of agriculture has finally arrived. The future for American agriculture for the next 10 years is very positive.”
If you're familiar with Helming's reputation, you know he's not prone to blindly toss around such accolades. In fact, he says this is the first time in his 41-year career when he can recall such giddy prospects for agriculture.
World grain demand
While ethanol mandates would likely be the first suspect in his rosy prognosis for agriculture, Helming says it's actually world demand for grain, not just the ethanol boom, that's buffing the shine on agriculture. China, for instance, has become a net importer of grain. “That's a big deal,” Helming says.
He says corn “is and always has been the hub” of all agriculture. “What corn does impacts all else — beef, pork, poultry, milk, eggs.”
The biggest winners, of course, are grain farmers, Helming says, but other sectors will also be pulled along in their draft.
Globally, consumer incomes are rising. That's spurring demand and consumption of meat, eggs, cheese and milk, a point on which all economists are in agreement, he says.
Rising food prices
One seeming cloud on the horizon is Helming's expectation for U.S. and global food prices to increase significantly the next several years. Consumer expenditures for food as a percent of total disposable income will increase significantly, as well.
So wouldn't consumer pocketbooks impacted by higher food prices affect their willingness to invest in proteins, particularly higher-priced ones such as beef? Some economists think so.
For instance, Derrell Peel, Oklahoma State University Extension livestock specialist, allows that beef is the top protein choice for U.S. consumers. “However, increasing supplies of cheaper alternative meats means consumers will be more willing to substitute other meats for beef,” he says.
But Helming responds that consumer demand for beef has remained “quite impressive.” And it's become more “inelastic,” which means U.S. consumers have grown less sensitive to increases in retail price.
“Escalating food prices and record meat supplies will be limiting factors and could keep beef prices from going higher, but they will trend higher,” he says.
Helming says the overall supply and demand dynamics for virtually all commodities from cattle to crude oil “are generally positive and price supportive over at least the next two years.”
He expects annual fed-cattle prices to be within the $93-$95/cwt. range for 2008, with the two primary negative factors being increased total beef and competing meat supplies in 2008, and a substantial slowdown/recession for the U.S. economy in the 2008-2009 period. The three key positive factors are:
Overall continued positive domestic consumer demand for beef.
Increased beef exports in 2008, particularly in the second half, as the U.S. recovers lost Pacific-Rim markets.
Excess capacity among the five largest U.S. beef-packing companies and competition for a flat to declining supply and inventory of fed cattle.