May 13, 2009

Current forecasts suggest an economic recovery in 2010, but the farm rebound hinges on renewed strength in domestic and export food and fuel consumption, says a Federal Reserve economist.

 

Jason Henderson, vice president and Omaha Branch executive, said in an analysis from the Kansas City Federal Reserve that moderate stabilisation in the overall economy could materialise in the second half of 2009 before "a relatively tame 2.5 percent to 3.3 percent rebound in 2010."

 

This compares with a trend in economic recoveries since World War II of more than four percent in the first year after other recessions.

 

Before that happens, though, the most recent projections point to further declines in the first half of this year, the Fed said.

 

Domestically stronger US incomes would help increase restaurant sales and meat consumption, the Fed report said. Consumer demand in these areas has shifted away from the white tablecloth and middle-of-the-road restaurants while fast-food has picked up some of the slack. And economists say this portion of the demand outlets needs to increase if meat production incomes are to rebound.

 

Overall, "a farm rebound will depend heavily on the strength of the rebound both in the US and globally," Henderson said. Rising incomes would support not only meat consumption but would support US fuel consumption and ethanol demand, which would push corn values higher.

 

Recession recovery in other countries also could be expected to increase demand for food and, thus, US agricultural products, Henderson said. People in developing countries often use rising incomes to improve their diets, and this often shows up in demand for protein.

 

Projections for stronger global demand in 2010 have raised long-term projections of US farm income, the report said. A major driver of farm profits is the export market, and historical trends indicate a strong connection between farm profits and export activity, global incomes and the value of the US dollar.

 

However, because of projections for a tepid global economic recovery next year, farm incomes may not reach the 2008 record highs soon, Henderson said.