A weak global economy is weighing on the farm economy right now, but a glimmer of hope is on the horizon, according to a Purdue University agricultural economist.
Jason Henderson, director of the Purdue University Cooperative Extension Service, said the long-term economic outlook is positive, and he predicts the U.S. economy will lead the world out of recession. But first we have to get through several years of slow exports.
Henderson was the keynote speaker during the Indiana Dairy Producers' "Partners in Success" luncheon on Nov. 6 in Indianapolis.
The U.S. currently has a strong dollar, making U.S. goods more expensive on the foreign market. With China's economy leveling off, fewer U.S. dairy products, like nonfat dry milk, are being sold abroad and the result has been lower farmgate milk prices in the U.S.
Looking at things from a "macro" perspective, Henderson, who holds master's and doctorate degrees in agricultural economics, believes this situation will turn around. In 10 to 20 years, China will assert itself as a consumer-oriented society and once again will be buyers of U.S. goods.
"Once we get through this period, then I think the tides are going to shift again," Henderson said. Looking 10 to 20 years into the future, he said, "China is going to be emerging as a consumer-oriented economy. They're going to want a stronger value of their currency . . . And that will open up opportunities for us to export goods to them under a weaker value of the dollar. That's long term."
He added, "We've got a short-term hurdle that we have to go through. But long term is positive when I think about agriculture and the dairy industry and our ability to penetrate foreign markets going forward."
Henderson said reduced demand overseas is dragging down milk prices, after record export growth over the past decade. He said exports of dairy products are down 38 percent across the globe.
Like the rest of the farm economy, the U.S. dairy industry is hurting.
"What we've seen over the last year has been both the revenue stream and cost structure have gone down, but the revenue structure has gone down more," Henderson said.
One of the main reasons for the drop in exports is a slowdown in China's economy. Over the past decade, China's economy advanced 10 percent per year, driving growth in the export market. However, Henderson said China's economy currently is struggling to hit 7 percent, reducing the worldwide demand for protein.
Economic cycles come and go, and Henderson pointed out that someone other than China will lead the world out of the current downturn. Who will that be?
"It's the U.S. economy that's going to be leading us out of this recession, and we've got to help China get out," Henderson said.
According to Henderson, a value of the U.S. dollar plays a big role in foreign trade. Currently, the U.S. dollar is in a strong position compared to other currencies.
"I think one of the biggest things that's happened in terms of the dairy products and ag products and some of the struggles we've been having is the higher value of the dollar. I think this is going to be with us for a while, short term. But long term, I think there's going to be a general shift."