Friday, April 10, 2009

U.S. Farmers Hit by Global Downturn

After experiencing a boom year in 2008, United States farmers' earnings will likely be pared significantly in 2009. The U.S. Department of Agriculture has predicted that farm income will fall about 20 percent in 2009, down to $71.2 billion. Farm exports, which make up about 20 percent of total farm production, are forecasted to fall from $117 billion to $96 billion.

U.S. agriculture rode a wave of prosperity in 2008, when agricultural commodities prices peaked, exports increased due to increasing developing country demand, and global conditions such as a drought in Australia increased demand for U.S. products.

Since then, however, U.S. agricultural conditions have become significantly bleaker. The rising value of the dollar has made U.S. exports more expensive and less competitive. The dollar has appreciated against the Euro (from $1.60 to $1.32) and the Pound ($2 to $1.47). Commodities prices have also fallen across the board, most between 40 and 50 percent since their highs in mid-2008.

U.S. agricultural exports have also softened because of decreased global demand due to the global financial crisis. Exports volumes of corn have fallen by 40 percent in recent months, with wheat falling 30 percent.

Not all of the news for U.S. farmers is bad. Farmland and farm building property values are still expected to rise by a small amount in 2009, although by much less than their seven percent increase in value in 2008. And rising requirements for the use of ethanol will give corn growers a buffer against decreasing exports.

1. How do U.S. declining agricultural revenues compare with other industries, such as manufacturing and services? Although their conditions are deteriorating, are U.S. farmers actually in a better position relative to other U.S. economic sectors during the financial crisis?

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