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Rural America Looks Ahead to 2005

posted on December 31, 2004

Analysts are fond of predicting the future. It's what they're paid to do. So on the verge of the New Year, many analysts this week were in full forecast mode. The majority are calling for a healthy U.S. economy in 2005, but not nearly as strong as 2004.

Such forecasts are based on the assumption there will be few outside influences on the economy, like a terrorist attack. But those things are hard to predict. John Nichols provides our own look back at 2004 ... and a glimpse ahead at 2005.


Rural America Looks Ahead to 2005

For rural America, the major issues pending in 2005 are much the same as they were a year ago at this time: uncertainty over trade and legislative policies ... doubt about commodity price stability under the burden of huge supplies ... and concerns over the long shadows cast by things like Mad Cow disease and Asian soybean rust.

Trade should again dominate the farm agenda, especially amid speculation of a breakthrough in World Trade Organization talks. Those negotiations, which began in 2001, are intended to liberalize global trade. But disagreements over farm subsidies and price supports have stymied talks in the past. Third World and developing nation coalitions have formed to put pressure on major food producers and exporters, like the U.S. and Europe, to reduce those supports.

Robert Zoellick, U.S. Trade Representative: "We've said if we can get others to cut their subsidies, eliminate their export subsidies, cut the tariffs -- particularly some of the major developing countries as well -- we want to go forward."

A framework to resolve differences has been established, and while meetings will continue through the year, the next big gathering for WTO members is scheduled for Hong Kong in December 2005.

From cotton to sugar to beef, there are trade issues outside WTO that impact U.S. agriculture. Among them is the effort to reopen overseas markets to American-bred beef. More than 60 nations, including Japan, closed their ports to U.S. beef following the discovery of a single case of Mad Cow disease in Washington State in late 2003.

Gregg Doud, National Cattlemen's Beef Association: "The value of our exports of beef and beef variety meats in 2003 was $3.8 billion. That was a record. And it was a completely remarkable and unusual situation whereby we had record beef exports at the same time we had record domestic prices. In agriculture that's almost impossible to have happen."

Recent talks created guidelines for the re-introduction of U.S. beef to Japan sometime this coming spring. But the loss in sales totals in the billions of dollars ... and the pre-Mad Cow market share may never be fully regained.

Global trade in pork also saw dramatic change in 2004. Exports of U.S. pork jumped sharply, as overseas customers like Japan looked to fill the meat gap left by the ban on beef. At the same time, Canadian pork exports to the U.S. also increased for much the same reason. A U.S. ban on Canadian beef, following that country's 2003 Mad Cow scare, opened the gates to an influx of Canadian pork. That, in turn, led to import duties ... an issue that remains unresolved.

Soybean producers have their own exotic disease with which to contend ... Asian soy rust. Up to now, the fungus has hampered soybean crops in Asia and South America. But its discovery at a Louisiana research farm this fall means the disease now has arrived in the largest soybean-producing nation in the world.

Greg Tylka, Iowa State University Plant Pathologist: "It might shift the production dynamics in the United States. Al along we've been talking about how the amound of damage caused by soybean rust really depends on how early in the season it shows up. And we all tend to believe it's going to survive over winter in the southern United States. So the logical conclusion to come to is that those soybeans in the southern U.S. will be infected much, much sooner than soybeans in the Midwest in particular."

Even so, only about a third of the farmers responding to a survey said they plan to switch to other crops because of the threat of soy rust. Stay tuned.

Though markets responded initially to the reports of soy rust, traders remain far more focused on the fundamentals of supply and demand. And there was plenty of both in 2004.

Keith Collins, USDA Chief Economist: "We project farm exports at $59 billion this year and that nearly equals the all-time record high. Had it not been for the finding of BSE, and the lost U.S. beef exports, total U.S agricultural exports surely would have been a record of several billion dollars."

U.S. farmers reaped record harvests of corn and soybeans. Cotton production also set a record.

Fortunately for farmers, the global appetite for grains and oilseeds was outstanding, leading to profitable prices for most commodities. Ideal growing conditions served as a catalyst for the big crops, which in turn sparked record exports in 2004. And, although USDA expects a downturn in export value in 2005, world demand is forecast to remain strong.

The X factor for farm country in any post-election year is the federal government's contribution to the bottom line. Rural America enjoyed the spotlight during the 2004 campaign as politicians fought for votes in key battleground states. But with election promises fading into memory, official Washington already is talking about budget cuts to farm programs to help address the burgeoning federal deficit.

Some of that effort will occur in 2005 as Congress begins to ponder the writing of a new farm bill. >And with President Bush promising a "tough budget" proposal early in the year, farm state interests will be keeping a close eye on the proceedings.

For Market To Market, I'm John Nichols.

Tags: agriculture crops Mad Cow markets news rural