A lagging U.S. and global economy will continue to be a drag on any recovery for the nation's agriculture in 2002, says Keith Collins, chief economist for the U.S. Department of Agriculture.
The strength of the dollar won't help things either, he said at the Agricultural Outlook Forum 2002 at Washington. And adding salt to the wound, this will only encourage more crop production by U.S. competitors.
If there's a bright spot, Collins said, it's that the slow world economy will help to stabilize production expenses for U.S. growers.
“The outlook for the global economy is a continuation of the slowdown through 2002…which will constrain overall U.S. agricultural growth,” he said.
Food spending in 2002 was basically flat, Collins noted — some $40 billion below trend — “and unfortunately, could remain flat again for much of 2002.”
Food sales “should improve as the year unwinds, as inventory balance is restored, tax cuts continue to be implemented, and low interest rates finally show their lagged, stimulative effects.”
The economies of many foreign countries “continue to shrink,” Collins said, and in 2002 “developed economies will be particularly weak, especially Japan. But prospects are improving in a number of areas, including the Middle East, East Europe, and parts of Asia.”
The high value of the U.S. dollar is expected to continue to hamstring America's competitive position in world markets.
“The dollar is 25 percent higher than the past six years,” Collins said, “and a further slight appreciation is expected this year as the U.S. continues to attract capital inflows as the recovery advances and the U.S. remains a global safe haven.”
The combination of a lagging recovery for foreign economies and the strong dollar “not only makes U.S. products more expensive, but insulates foreign competitors from market price declines, thus serving as an incentive for them to maintain or even expand their farm production.”
The relationship between U.S. agricultural exports and foreign economic growth “is positive in the short term, but weak in the long term,” Collins said.
But despite continued slow economic growth in foreign countries, the strong dollar, and generally good and/or increased production by competitors, “we continue to forecast a modest increase in U.S. exports to $54.5 billion, up from nearly $53 billion this past year.”
U.S. markets are where they are today “largely because of inconsistent and weak world economic growth since the late 1990s, and generally good world weather for six consecutive years,” Collins said. Although there was year-to-year variability in yields, overall production has been “very stable” for the period, he noted.
Today's agricultural markets “reflect a world economy that has been weaker and more variable the past few years, while crop production has been reasonably good around the globe. For 2002, the world and U.S. economies will get better as the year unfolds, but they are not likely to provide agriculture with much demand, and global farm production may again reflect the trend of the past few years.
“The upshot,” Collins said, “is that U.S. farm markets may strengthen somewhat, but look very similar to 2001/2002.”