Economist: Crisis is the big one
WILLMAR - The financial crisis facing the United States and the world is really "the big one," but that doesn't mean the world is facing another Great Depression, according to an AgriBank economist who addressed the seventh annual Strategic Animal Ag Conference Friday in Willmar.
At the basic level, this recession is due to a lack of confidence in money, according to Jim Kielkopf. The economist examined the risk of livestock producers, based on the impact of the current financial issues.
The pork sector has the greatest risk, thanks to the fact that 22 percent of U.S. pork production is exported. Much of that meat goes to nations, such as Japan, that have also been affected by the financial crisis, Kielkopf said.
Beef producers are in a better position than the swine industry, largely because less, only 7 percent of the nation's beef production, is exported. The broiler industry faces more risk, with 18 percent of chicken exported. The turkey industry exports 10 percent of its production.
One good thing that farmers, and everyone else, can count on is the fact that food, feed and fuel costs will drop. "What we can count on during this crisis is low-priced oil," Kielkopf said.
Another factor is the consumption of corn and soybeans for renewable fuels, which may continue or increase under government mandate, he added.
Producers will also see weaker demand for meat, as consumers who have fewer dollars to spend may turn to cheaper cuts. That demand decrease will lower sale prices and tighten margins, which will put farmers at a higher risk that meatpackers may default on their contracts.
"Pilgrim's Pride is not the only one, other packers are highly leveraged too," he said. The nation's largest chicken producer declared bankruptcy in December.
Domestically, fewer people working means lower demand for meat products. Consumers, with fewer dollars in their hand, will move to cheaper cuts of meat, he said. "Bargain foods are in, and luxury items are out."
Another factor is that population growth is slower, due somewhat to the fact that immigrants are not coming to the U.S. for jobs now, because there aren't any, especially in the construction industry.