Economic Collapse Takes Root in Agriculture

US - As the credit crunch sends markets worldwide reeling, industries from all sectors are worrying how they will be entangled in this downfall. According to meat industry officials the US agricultural industry is preparing to be hit hard.
calendar icon 6 October 2008
clock icon 2 minute read

A look back at recent history in commodities futures shows a lot of red days. “It doesn’t matter what commodity we’re talking about, it’s had the heck beaten out of it,” Gregg Doud, chief economist for the National Cattlmen’s Beef Association told Burt Rutherford of Beef Magazine. “That’s demand destruction. And that is not a good thing for agriculture” because that investment in ag commodity prices is flowing away from ag producers.

Of significant concern to cattlemen, says Jim Robb at the Livestock Marketing Information Center in Denver, is the ag credit situation. Short term, that will be felt most by cattle feeders, because that segment of the industry relies heavily on short-term money. “The risks here are much greater than they were a few weeks ago in terms of the availability of capital to finance cattle feeding, and the interest rates that are available,” Robb says.

According to a report from Beef Magazine, that will make an already-challenging cattle-feeding environment even tougher. The first six months of 2008, cattle feeders lost more money—about $1.5 billion—than they lost in any period in the history of cattle feeding. “Here’s the real worry,” Don Close, market director at the Texas Cattle Feeders Association in Amarillo, told the news agency. “Given the performance in cattle feeding we’ve seen year to date, a lot of these guys are really deep into their credit lines. If lenders start tightening up credit, start taking any of that away, they’re already so far into their credit lines that there’s nothing left. If credit becomes a driving issue, we’ll see way fewer numbers on feed just because there’s not a credit line out there to support it.”

Another area that will be problematic for ag, and particularly for cattlemen, is the export market. “Our export demand this summer was very solid,” Doud says. However, since July 1, the dollar has appreciated at a torrid pace historically. “The U.S. dollar has appreciated 21% against the Australian dollar, 19% against the Brazilian real, 13% against the Korean won, 9% against the European euro and about 5% against the Canadian dollar. That 13% in Korea makes our beef 13% more expensive to the Korean consumer than it was the first of July. That’s a problem.”

Long term, the economists admit they don’t know what will happen. But they do know it will take time, likely measured in years, for global economies to heal from the wounds they have already sustained and those yet to come, reports Beef Magazine.

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