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2005 In Retrospect

posted on December 30, 2005

While Katrina's impact on Gulf Coast infrastructure will be felt for some time, the overall economy surprised many observers in 2005, quickly regaining its footing after the hurricanes and record energy prices. With the nation entering its fifth year of economic expansion, analysts are uncertain the trend will continue. The general consensus is that the economy will continue to grow albeit more modestly. The forecasts are based on the assumption there will be few outside influences on the economy. And if history is any indicator, those making the predictions needn't look further than the rear-view mirror. John Nichols provides our own look back at 2005 ... and a glimpse ahead at 2006.

2005 In Retrospect

Shortly after 2005 began, the Bush administration appointed several new people to second-term cabinet positions. Former Nebraska Governor Mike Johanns took over the helm at USDA, promising to make free trade a top priority.

Mike Johanns, USDA Secretary: "I want to emphasize that I'm going to put a tremendous emphasis on trade issues, making sure trade is fair and open to products our farmers and ranchers produce in this country."

Johanns couldn't have chosen a more lofty goal. And trade would, in fact, dominate the rural agenda in 2005.

For the past three decades, the U.S. has imported more foreign goods than it exported. 2005 was no exception as the U.S. posted a record trade deficit of $718 billion dollars.

Agriculture, historically, has been the lone bright spot in the overall U.S. trade picture. But the string of more than 40 consecutive agricultural trade surpluses is in jeopardy. While the U.S. still is the world's largest exporter of agricultural goods and currently enjoys an agricultural trade surplus of more than $10 billion, imports are rising nearly twice as fast as exports. And some economists predict that if current trends continue, the U.S. agricultural trade surplus will turn into a deficit before the end of the decade.

President Bush: "The bill I'm about to sign is good for America."

In August, President Bush signed the Central American Free Trade Agreement, or CAFTA, saying the accord would alleviate poverty in Central America and promote economic growth at home.

CAFTA won approval in the House on a vote of 217-to-215. The razor-thin, two-vote margin gave the Bush administration victory in a particularly hard-fought battle of trade politics.

North of the border, another battle was brewing as the U.S. prepared to resume imports of Canadian beef. USDA claimed the American beef industry would suffer only a "moderate" economic impact due to opening the border to Canadian imports. But Senator Mark Dayton of Minnesota took exception with that conclusion.

Sen. Mark Dayton, D - Minnesota: "Your economic science is out of Mad magazine. The large meatpackers are going to shift their processing plants to Canada, where they can literally make a killing. And those American jobs will be lost. Those American workers... our taxpayers... our citizens and constituents and their families are going to be devastated by those closings and loss of jobs and you call that a 'moderate impact.' And I find that ignorant and offensive."

Despite another year of favorable prices, cattle producers faced other challenges in 2005. Japan continued its ban on U.S. beef well into its second year. The Japanese closed their borders to U.S. beef in the wake of America's first confirmed case of Mad Cow disease late in 2003.

Typically, exports account for only about 10 percent of the 35 million head of U.S. cattle slaughtered annually. But the economic impact of closing America's most lucrative beef export market meant the immediate loss of nearly $4 billion in sales. Japan opened its borders to U.S. beef just two weeks ago. And shortly after lifting the ban, the Japanese confirmed their 21st domestic case of Mad Cow disease.

Mother Nature wreaked havoc on both rural and urban America in 2005. While the catastrophic loss of life in New Orleans due to hurricane Katrina garnered the most attention, the "Crescent City" wasn't the only place hurt by the storm. Damage estimates to the farm industry along the Gulf Coast exceeded $3 billion.

As the federal government pumped billions of dollars of relief money to the South, farm state lawmakers from as far away as North Dakota introduced legislation to help farmers hurt by Katrina, as well as other natural disasters.

Rep. Earl Pomeroy, D - North Dakota: "In North Dakota alone, 37 of our 53 counties have had a level of devastation that would qualify for disaster declarations. Our farmers also need help."

Fears over damage to Gulf Coast refineries caused a spike in fuel prices which already were at 20-year highs. Crude oil, which had traded below $50.00 per barrel in the spring, exceeded $70.00 per barrel briefly in the fall. Concerned motorists, truckers and farmers could only watch the meters run as gasoline prices rose above $3.00 per gallon.

President George W. Bush: "Millions of American families and small businesses are hurting because of high gasoline prices"

Responding, in part, to higher fuel costs, Congress finally passed a comprehensive energy bill that had stalled in previous sessions. Among the law's key provisions was a mandate for refiners to use 7.5 billion gallons of ethanol annually by 2012 -- more than double the current annual production.

But if 2005 was any indication, farmers won't have much difficulty supplying the increased demand. Despite arid conditions in the "Grain Belt," U.S. growers harvested record crops of both corn and soybeans.

Due to low cash prices, more than half of the 11-billion bushel corn crop was covered by loan deficiency payments or LDPs. But LDPs, and many other government subsidy programs, face an uncertain future.

With the federal budget deficit exceeding $300 billion in fiscal year 2005 and the national debt topping the $8 trillion mark, the U.S. is drowning in red ink.

And just before adjourning for Christmas, Congress approved $2.7 billion in farm spending cuts over the next five years as part of a broader deficit reduction package.

While conservation programs bore the brunt of the budget axe, traditional commodity programs were, for the most part, spared.

Meanwhile, on the other side of the globe, the 149 members of the World Trade Organization made modest progress in their efforts to liberalize global trade, agreeing to end farm export subsidies by the year 2013.

The combination of increased foreign and domestic pressure to curtail government farm programs will, no doubt, lead to more cuts in the future.

And with Congress about to begin the arduous task of writing the next Farm Bill, the only thing certain for American Agriculture in 2006 -- is uncertainty.

For Market to Market, I'm John Nichols.


Tags: agriculture beef crops Mad Cow markets meat news rural