After being battered for two years by low prices, sagging exports and a strong U.S. dollar, agriculture is poised for a turnaround. Commodity prices are beginning to rise modestly, and markets in Asia, Canada, and Mexico are likely to become stronger. Keith Collins, chief economist of the U.S. Agriculture Dept., says a strengthening world economy gets most of the credit for the improving outlook for U.S. agriculture. He says growth in the global economy should boost farm exports to $51.5 billion this year, from $49 billion two years ago.
John M. McMillin, a food industry analyst with Prudential Securities Inc., agrees that the market has bottomed. "There is some modest improvement in crop prices," he says. The U.S. is shipping more pork and beef to Asia and a little more chicken to Russia, he notes. What's more, prices are rising for eggs, milk, corn, soybean oil, soybean meal, and many other commodities. "The question in 2001 is how much improvement we will see," McMillin says.
Analysts also see a trend toward more consolidation in the industry. Smithfield Foods Inc. (SFD) of Virginia and Tyson Foods Inc. (TSN) of Arkansas have waged a bidding war for South Dakota-based IBP (IBP), the world's largest producer of beef and pork. Other such deals are likely to follow.
FOOD SAFETY. John W. Skorburg, senior economist and trade specialist with the American Farm Bureau Federation, which represents 85% to 90% of U.S. farmers and ranchers, thinks exports will rise by about 4% in 2001. "We're going to see a fairly significant pickup in Asia, and in North America we're seeing relatively good markets in Canada and Mexico," he says. Trade disputes with Europe could hurt exports there, however. "The most important case would be beef," he says, noting that the U.S. raises beef with hormones. "Europe does not want to take that beef," says Skorburg.
In fact, food-safety issues may play an important role in the industry this year. In addition to questions about hormone-fed beef, Europeans are still worried about the spread of mad cow disease, otherwise known as bovine spongiform encephalopathy, or BSE. Food safety issues have an impact on "the regulations on genetically modified organisms, on antibiotics, and on the traceability of products," says Christine L. McCracken of Midwest Research in Cleveland.
An increasing number of cases of bacterial contamination of food products could also hurt the industry. On Dec. 14, for example, Cargill Corp. announced a recall of 16.7 million pounds of turkey and chicken products because of possible contamination--later confirmed--with listeria, a microbe that can cause high fever, severe headache, neck stiffness, and sometimes death. Recalls of ground beef because of contamination with E. coli bacteria are also increasingly common. "As the technology to test for more things evolves, you're going to find that almost everything has a little something in it," says McCracken.
Concern over the safety of biotech foods could affect both domestic demand and exports of agricultural products, says the USDA's Collins. For example, the grain-handling and distribution system may not be able to deal with segregation and labeling of commingled commodities, such as "organic" and genetically modified strains of wheat, he says.
And there's a final uncertainty, compounded by the arrival of a new administration in Washington: Congress could decide this year to change the farm bill. The current bill, adopted in 1996, was intended to curtail payments to farmers. But payments grew to $13 billion in 1999 and inched up again last year--more than double what was expected when the bill was enacted. "We're hearing a lot about some kind of safety net that would be countercyclical, that will help during tough times but let the market work when prices go up," says Skorburg. But any such program has to follow the rules of the World Trade Organization in Geneva, complicating the debate in Washington.
Overall, however, the mood in the industry is upbeat. "I think there is a light on the horizon," says McMillin. The pain of the last two years hasn't ended, but the industry is beginning to recover.