By Robert Pore

Uncertainty in the general economy continues to drive the agricultural market outlook in a midyear baseline from the University of Missouri Food and Agricultural Policy Research Institute (FAPRI).

“For most U.S. crops, market prices have declined from last year’s peaks but remain well above pre-2007 levels,” said Pat Westhoff, senior economist and co-director of FAPRI.

According to the U.S. Department of Agriculture, Nebraska statewide average corn prices were down $1.92 per bushel in July compared to July 2008; soybean, down $3 per bushel; sorghum, $4.68 per hundredweight; hogs, $13.50 per hundredweight; and steers and heifers, $16.50 per hundredweight.

“On the livestock side, the baseline shows recovery in 2010 for meat and dairy prices but depends on general economic recovery and continued reduction of supplies,” said Scott Brown, FAPRI livestock economist.

Westhoff said lower petroleum prices have reduced production costs. Those lower lower prices also reduced demand for biofuel., which lowers demand for corn and soybeans, major sources of those fuels.

The mid-August FAPRI baseline is a limited updating of the 10-year baseline released in March 2009. The agricultural commodities outlook changed markedly since the completion of the FAPRI long-term baseline, Westhoff said.

Brown said a worldwide recession led to weak domestic and international demand for many U.S. agricultural products. That weak demand, he said, occurred at the same time the farm sector faced production costs exceeding historical averages.

According to the USDA, the average total farm production expenditures when up from $332,914 to $350,633 from 2007 to 2008.

“Hog farmers and dairy producers are enduring a prolonged price squeeze,” Brown said. “Some have used all of their equity and have tapped all of their credit.” Price recovery for meat and milk requires continued growth in consumer demand. In response to low prices, both sectors are reducing what was record production.

In the updated FAPRI baseline, prices for barrows and gilts average $57.59 per hundredweight in 2011, up from $42.82 projected for 2009.

In dairy, the all-milk price average goes from $12.47 per 100 pounds in 2009 to $16.37 by 2011.

But Brown cautions that as the economy recovers, demand for agricultural products increases, raising prices. At the same time, demand and prices for oil also increase.

Oil prices, which hit $145 per barrel leading into the recession, are projected for 2009-10 to average $61.31 per barrel. By 2015, the end of the baseline, the price rises to $94 for West Texas intermediate crude, according to FAPRI.

For outlook on petroleum prices and macroeconomic assumptions, FAPRI economists rely on IHS Global Insight Inc. a private group.

Based on the oil price rise, ethanol prices at Omaha are projected to increase from $1.65 per gallon this marketing year to $1.76 in 2010-11 and to $2.09 by 2015.

Corn prices for this marketing year are projected at $3.47 per bushel, down from $4.05 last year. By the end of the shortened baseline, prices are back at $3.98.

Corn plantings continue to rise through the baseline from 88.5 million acres next year to 90.4 million acres in 2014. Added acres come largely from cotton and sorghum plantings.

Soybean acres remain stable, going from 77.9 million acres next year to 78 million acres in 2014.

Soybean prices, projected at $9.44 per bushel for this marketing year, decline to $9.12 next year, then rise steadily to $9.74 by 2014.

In the cattle sector, Brown said the outlook depends on where you are in the supply chain. Unlike hogs, where production is often coordinated, the cow-calf, backgrounding and feedlot operations remain separate.

“Feedlots have been bleeding red ink for a long time,” he said.

The baseline projects price recovery for fed cattle based on a declining to steady supply. Fed cattle projected at $85 per hundred this year will rise to $93 in 2010 and $98 in 2011. All are based on Nebraska direct sales.

Feeder steers at Oklahoma City are projected at $103 per hundred this year, followed by $115 in 2010 and $123 in 2011.

The 11-page 2009 baseline update is available at http://www.fapri.missouri.edu.

 

By Robert Pore

As Americans debate the pros and cons of cap and trade, it’s obvious that what concerns people the most about the proposal is that it will increase energy costs.

The fact is energy costs are going to go up whether cap and trade is passed or not. It’s a fact of life. Last year, when gasoline costs soared to more than $4 per gallon and diesel costs nearly $5 per gallon, it wasn’t a passing fancy. The cost of a barrel of oil would have soared to more than $200, but something got in the way — a global economic meltdown.

We all want the economy to improve, but a consequence of that will be higher energy costs as demand for goods and products increase.

Here’s one of the reasons why, regardless of cap and trade, energy costs will continue to soar as the world’s economy — China and India.

According to Lester Brown of the Earth Policy Institute, United States, with 5 percent of the world’s people, consumes a third or more of the earth’s resources. U.S. economic might used to count on that fact, but now, Brown said, China consumes more basic resources than the United States does.

Among the key commodities such as grain, meat, oil, coal, and steel, China consumes more of each than the United States except for oil, where the United States still has a wide (though narrowing) lead, Brown said. China uses a third more grain than the United States. Its meat consumption is nearly double that of the United States. It uses three times as much steel.

But while those numbers reflect national consumption, Brown poses the question, “What would happen if consumption per person in China were to catch up to that of the United States?”

“If we assume that China’s economy slows from the 10 percent annual growth of recent years to 8 percent, then before 2030 income per person in China will reach the level it is in the United States today,” he said.

Here’s another assumption by Brown, “If we assume that in 2030 there are three cars for every four people in China, as there now are in the United States, China will have 1.1 billion cars. The world currently has 860 million cars. To provide the needed roads, highways, and parking lots, China would have to pave an area comparable to what it now plants in rice.”

“By 2030 China would need 98 million barrels of oil a day,” Brown said. “The world is currently producing 85 million barrels a day and may never produce much more than that. There go the world’s oil reserves.”

The higher energy cost caused by China’s growth will make the project energy cost if cap and trade goes into effect look like share change.

What China is teaching us, according to Brown, is that the western economic model—the fossil-fuel-based, automobile-centered, throwaway economy—is not going to work for China.

“If it does not work for China, it will not work for India, which by 2030 may have an even larger population than China. Nor will it work for the other 3 billion people in developing countries who are also dreaming the ‘American dream.’ And in an increasingly integrated global economy, where we all depend on the same grain, oil, and steel, the western economic model will no longer work for the industrial countries either.”

For Brown, the key to change is the “overriding challenge” to build a new economy—-one that is powered largely by renewable sources of energy, that has a much more diversified transport system, and that reuses and recycles everything.

“We have the technology to build this new economy, an economy that will allow us to sustain economic progress,” he said. “Can we build it fast enough to avoid a breakdown of social systems?”

While cap and trade is far from perfect, it provides a framework to begin to achieve the change that Brown is talking about.

There’s some concern that cap and trade may be a disincentive to create that new economy powered largely by renewable sources of energy that Brown talks about.

Bruce Johnson, agricultural economist at the University of Nebraska-Lincoln, said instead of balking and saying no to everything, the question that should be asked about fossil fuel dependency and global climate change is, “What are we going to do about it?”

“Cap-and-trade, in a sense, would begin starting to put a fair price on what has been subsidized fossil fuel for a long, long time and for us, too, in Nebraska on coal,” Johnson said. “We are subsidizing coal because we are not paying for the external costs of what it is doing in terms of CO2 emissions and so forth.”

Johnson said it is only a matter of time before there’s an imposed tax on Wyoming coal coming into Nebraska power plants, with or without cap-and-trade.

“Our cheap electricity is a passing amenity that we are not going to have very much longer,” he said. “Cap-and-trade will deal with that and a partial alternative to coal is getting wind power started in Nebraska. It is a time for energy transformation and cap-and-trade is one of those things and not just another kind of tax. It is a recognition of what needs to be done policy-wise. The economy will have to adjust and it will adjust and Nebraska could be a positive player in that adjustment.”

And if we don’t begin to address climate change, specifically through adopting more renewable energy, here’s what could happen.

According to researchers at Purdue University, urban workers could suffer most from climate change as the cost of food drives them into poverty.

A team led by Purdue University researchers examined the potential economic influence of adverse climate events, such as heat waves, drought and heavy rains, on those in 16 developing countries. Urban workers in Bangladesh, Mexico and Zambia were found to be the most at risk.

“Extreme weather affects agricultural productivity and can raise the price of staple foods, such as grains, that are important to poor households in developing countries,” said Noah Diffenbaugh, the associate professor of earth and atmospheric sciences and interim director of Purdue’s Climate Change Research Center who co-led the study. “Studies have shown global warming will likely increase the frequency and intensity of heat waves, drought and floods in many areas. It is important to understand which socioeconomic groups and countries could see changes in poverty rates in order to make informed policy decisions.”

Again, cap and trade isn’t perfect and is not the only answer to addressing climate change. But something has to be done because the very thing that makes us strong will soon turn on and we will be gasping for some expensive solution that will make our current debt look mighty small unless we really want to drastically reduce our standard of living.

An old saying goes, “What is good for the country is good for General Motors.”
On Monday, the Associated Press reported that “General Motors Corp., the century-old automaker battered by the economic downturn, mounting debt and management problems, will file for bankruptcy as part of an Obama administration plan to shrink the automaker to a sustainable size and give a majority ownership stake to the federal government.”
The Associated Press said GM’s filing It will be the largest industrial bankruptcy in U.S. history.
What battered GM and what battered the global economy is our heavy dependence on fossil fuels. The global economy thrives on progress and the fuel that drives progress is oil.
As the economy of the world grew, so did its need for oil. That increased oil costs to more than $140 per barrel last year.
Energy costs were unsustainable. Then the economy collapsed and so did oil prices. But for such a large company like GM, that sudden collapsed was too much to handle in such a high stakes business with intense international competition. Several years ago GM lost its ranking to Toyota as the world’s largest car company and China the world’s largest car market.
The United States isn’t defined by its auto industry, but bankruptcy will mean the downsizing of GM. Chrysler has also filed bankruptcy and will more than likely emerged with a new foreign owner — Italy’s Fiat.
What is hard to figure out is how did the U.S. auto industry fall so flat on its face when there were 244.2 million motor vehicles registered in the United States in 2006. About 134 million of them were cars, according to the U.S. Census Bureau.
The answer boils down to a lack of a credible energy policy in the United States. According to the US Government’s Energy Information Administration, the United States consumes about 400 million gallons (1.51 billion litres) of gasoline every day. That figure equates to about 20 million barrels of oil every day.
The figure above is where lies that answer to not only the downfall of America’s auto industry, but also the downturn of our economy.
But now energy costs are the rise and some economic experts saying the economy is emerging from recession. According to a new report from the U.S. Energy Information Administration projects that world marketed energy consumption will grow by 44 percent between 2006 and 2030.
According to EIA, the increase in energy costs is driven by strong long-term economic growth in the developing nations of the world.
But how much of that growth will be driven by oil? If the world’s economy heats up again and it’s fueled by oil, the next economic collapse (and it will surely happened in an oil dependent world economy) will be even more devastating.
According to the Nebraska AAA Daily Fuel Gauge report, last wee regular gasoline in Grand Island was selling for an average of $2.516 per gallon. A month earlier it was $1.933 per gallon. A year ago, the average was $3.87 per gallon. On July 16, 2008, gasoline prices in Grand Island hit a record high of $4.10 per gallon.
According to Wally Tyner, a Purdue University agricultural economist, even though gas prices are climbing, motorists should not experience the historic highs of one year ago.
He said pump prices traditionally rise in late May with the beginning of the summer driving season.
“For the rest of the summer, we can expect to see gasoline prices higher than this spring, but nothing like last summer,” Tyner said.
A combination of factors is driving gas prices higher, Tyner said.
“First, there are higher oil prices,” he said. “Crude oil is now around $60 per barrel, driven by signs of economic recovery and by violence in Nigeria — an important supplier of crude for the United States.”
In addition, Tyner said the falling U.S. dollar means that much of the rest of the world is not seeing the higher crude oil prices in their own currency, so they are not seeing higher gasoline or diesel prices.
The poor economy also is having an affect on gas prices and could do so for some time to come, Tyner said.
“Even though there are ‘green shoots’ evidencing prospects for eventual economic recovery, we will continue to be in recession through the summer and into fall,” he said.
Tyner said overall demand for petroleum products is still down, led by a decline in jet fuel demand of more than 10 percent. He said gasoline demand had been down 3.5 percent, but recently demand has picked up so that we are only down about 1 percent, leading to higher gasoline prices.
“From December 2008 until this May, gasoline had been priced lower relative to crude oil than by historic norms,” he said. “But today, even though crude oil stocks are still high, gasoline inventories are now considerably lower than historic norms. In essence, gasoline prices have now caught up with crude oil prices.”
According to the EIA report, the current global economic downturn will dampen world energy demand in the near term, as manufacturing and consumer demand for goods and services slows.
However, with economic recovery anticipated to begin within the next 12 to 24 months, EIA said most nations are expected to see energy consumption growth at rates anticipated prior to the recession.
EIA estimated that total world energy use will rise from 472 quadrillion British thermal units (Btu) in 2006 to 552 quadrillion Btu in 2015 and then to 678 quadrillion Btu in 2030.
World oil prices have fallen sharply from their July 2008 high mark.
As the world’s economies recover, EIA reported that higher world oil prices are assumed to return and to persist through 2030, with world oil prices rising to $110 per barrel in 2015 (in real 2007 dollars) and $130 per barrel in 2030.
Total liquid fuels and other petroleum consumption in 2030 is projected to be 22 million barrels per day higher than the 2006 level of 85 million barrels per day, according to EIA.
Conventional oil supplies from the Organization of the Petroleum Exporting Countries (OPEC) contribute 8.2 million barrels per day to the total increase in world liquid fuels production, and conventional supplies from non-OPEC countries add another 3.4 million barrels per day.
In addition, EIA said unconventional resources (including biofuels, oil sands, extra-heavy oil, coal-to-liquids, and gas-to-liquids) from both non-OPEC and OPEC sources are expected to become increasingly competitive.
According to EIA, world production of unconventional resources, which totaled 3.1 million barrels per day in 2006, increases to 13.4 million barrels per day in 2030, accounting for 13 percent of total world liquids supply in 2030.
The rapid increase in world energy prices from 2003 to 2008, combined with concerns about the environmental consequences of greenhouse gas emissions, has led to  renewed interest in the development of alternatives to fossil fuels.
Renewable energy is the fastest-growing source of world electricity generation, supported by high prices for fossil fuels and by government incentives for the development of alternative energy sources.
From 2006 to 2030, world renewable energy use for electricity generation grows by an average of 2.9 percent per year, and the renewable share of world electricity generation increases from 19 percent in 2006 to 21 percent in 2030. Hydropower and wind power are the major sources of incremental renewable electricity supply.
That trend needs to continue and it needs to continue at an even higher accelerated pace. What will save the U.S. auto industry and the U.S. economy will be a major shift toward vehicles that use less gas and an economy geared toward renewable energy.