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Farm prices are dependent on world economy

Farm prices are dependent on world economy

UW-Madison ag economists say US economy is strongest in the world

The U.S. economy has rebounded from the Great Recession and is showing signs of reasonable growth, according to Steven Deller, University of Wisconsin-Madison agricultural economics professor. "During the Great Recession agriculture was a source of relative stability."

Deller said during the next two years, the Gross Domestic Product is expected to grow at a reasonable 2.8% rate, with an upper-end forecast of 3.2% and a lower-end forecast of 2.4%. Since 1948, the average rate of growth in the GDP has been 3.2%.

He predicts the unemployment rate to drop to 5.5% by June and to decline to 5.0% by December 2016.

The biggest downside risks to the U.S. economy are global economic weaknesses and other international risks, according to Steven Deller, University of Wisconsin-Madison agricultural economics professor.

"While many economists consider more than 5% too high, since 1948 the average monthly unemployment rate has been 5.8%," Deller said during the annual Wisconsin Agricultural Economics Outlook Forum held at UW-Madison last month.

Growth in the Consumer Price Index, the most widely used measure of inflation, is expected to remain modest over the next two years increasing from a forecast of 1.15% in June of 2015 to 2.28% by December 2016.

"Since 1947, the average annual rate of inflation has been 3.55%. Over the next two years, inflation rates are expected to remain below historical averages," Deller noted.

The U.S. experienced heavy dairy product exports in the first half of 2014. Exports declined in the second half and imports of dairy products, chiefly butter, occurred during the second half of the year. U.S. dairy product prices significantly increased while prices in other exporting countries declined.

"We rode the wave of exports," said Mark Stephenson, director for UW-Madison Center for Dairy Profitability. "In 2014, we exported 16% of our milk production. As a result, what happens elsewhere in the world impacts U.S. dairy farmers."

Because U.S. dairy prices are now dependent on export market opportunities, Stephenson said domestic product prices must decline significantly to be competitive with current prices in Oceania and the European Union.

"Milk production has expanded significantly in all major dairy exporting countries which has lowered prices," he said.

The biggest downside risks to the U.S. economy are global economic weaknesses and other international risks, Deller said.

"Outside the U.S., the global economy rebounded modestly from the Great Recession but is showing strong signs of renewed weakness," Deller said. "The European and Japanese economies are very weak right now," he explained. "The Chinese economy is still growing but at a much slower pace."

The Russian economy is in shambles with oil prices dropping in half during the past seven months. The value of the rubble is half what it was in June. Meanwhile, the dollar is strengthening which is making it more difficult for foreign countries to purchase U.S. agricultural products and other goods, the economists noted.

Deller and Stephenson agreed the U.S. economy is currently the strongest economy in the world.

While some members of the audience questioned if the U.S. economy is really all that strong, Stevenson compared the U.S. economy to a horse.

"Right now our horse is the best looking horse in the glue factory."

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