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BusinessWeek: January 10, 2000 |
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Industry Outlook 2000 -- Life Sciences
Agriculture
The answer to that depends upon the weather in the Great Plains, the political winds in Washington, and one wild card--the public's attitude toward genetically engineered foods. If the recent spell of good weather continues, harvests are likely to be good again this year, and prices will remain low. And that's where Washington comes into play: The fall in prices is coming at a time when Congress is trying to wean farmers off of 60 years of government assistance. The 1996 farm bill called for a phaseout of government subsidies by 2002. But so far, Congress has been unable to refuse farmers' pleas for help. In each of the past two years, Congress has approved special payments to help struggling farmers--$6 billion in 1998 and $9 billion in 1999. And it could decide to do the same thing again, if farmers have another difficult year. "That has offset what would have been very low market returns. It made cash flow look pretty good, in fact," says Keith J. Collins, chief economist at the Agriculture Dept. On Dec. 21, the USDA predicted that farm income in 2000, without help from Congress, will be $190 billion, compared with $192 billion in 1999. One of the things expected to hold prices down is a large inventory, the result of four big crops in a row. "Each year, for the last few years, that inventory has been a little bigger than the year before," says Alan D. Barkema, an economist with the Federal Reserve Bank of Kansas City. The large inventory is likely to continue to hold down prices until there is a crop shortfall, Barkema says. And there is some concern that weather could lead to a shortfall this year, possibly tied to a weather pattern known as La Nina, characterized by cooler-than-normal Pacific Ocean temperatures. "If that occurs, these inventories don't look that big. Then crop prices could be a bit stronger," says Barkema. While some farmers could suffer terribly as the result of bad weather, the agriculture industry, overall, tends to benefit from bad weather--the percentage increase in prices is usually larger than the percentage drop in production. BIOTECH BROUHAHA. The one bright spot for the coming year is in livestock, especially beef. While hog farmers will have only a slightly better year, cattle producers should do well. Part of the reason is increased demand, tied to the booming U.S. economy: Americans' per capita consumption of meat hit a record high in 1999. Hog producers might be rescued by an expected increase in demand for bacon, as McDonald's and other fast-food restaurants offer more sandwiches containing bacon. One factor that might affect prices is the public's growing concern about genetically modified foods. Are farmers reacting by planting less biotech seed? No one knows for sure, but Miller says projections show that "sales for biotech seed are running similar to last year. Farmers are concerned, but they like the product." If that's the case, it reflects a sharp departure from trends of the past four years, during which use of biotech seeds grew to cover 76 million acres of American farmland. Even so, concern about biotech crops is unlikely to have much of an impact on agriculture in 2000. While farmers can expect some relief from the low and even Depression-era prices of 1999, it is likely to be at least another year before they can hope for an upturn in the industry's cycle. Return to top | |
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  Return to top TABLE Positives and Negatives POSITIVES -- Economic growth in Asia and South America could help boost U.S. exports. -- Hog farmers will recover slightly from a disastrous 1999, and an increased demand for beef should help cattle ranchers. NEGATIVES -- The farm economy remains weak, and farmers' incomes are likely to fall sharply if Congress does not again provide emergency aid. -- Consumer concern about genetically engineered crops could cut crop prices. Return to top |
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