Replies to post #1465 on The Rising Influence of Rising Affluence

[DewDiligence]

Near-Record Exports Lift US Agriculture Sector

http://www.nytimes.com/2010/09/01/business/economy/01exports.html

›September 1, 2010
By WILLIAM NEUMAN

Even as the broader economy falters amid signs of a weakening recovery, the nation’s agriculture sector is going strong, bolstered in part by a surge in exports, according to federal estimates of farm trade and income released on Tuesday.

The estimates confirm what economists have been saying for months: agriculture, which was generally not hit as hard by the recession as many other segments of the economy, remains a small bright spot going forward.

“We’re just having a robust rebound in the agricultural sector and promises of more growth,” Jason R. Henderson, vice president and economist at the Omaha branch of the Federal Reserve Bank of Kansas City, said in a recent interview.

The estimates show that American farmers will ship $107.5 billion in agricultural products abroad in the fiscal year that ends Sept. 30. That is the second-highest amount ever, behind the record $115.3 billion in exports logged in 2008, when commodity prices soared as the global demand for agricultural products was helped by fast-growing economies in the developing world.

Next year, exports are expected to total $113 billion. In releasing the data, Tom Vilsack, the secretary of agriculture, said exports of grains and meats were leading the rebound. He called the new estimates “very encouraging.”

The export growth is propelled by higher prices for many products, including wheat, whose prices have skyrocketed as drought and punishing heat decimated crops in Russia, Ukraine and Kazakhstan. Exports to Asia have been particularly strong, and China is forecast to surpass Mexico next year to become the second-largest foreign buyer of American farm products. Canada is the No. 1 export market.

Wheat exports this year are estimated at $6 billion, about the same as last year, as much of this year’s crop had already been sold when prices started to rise. But wheat exports for the fiscal year 2011 are expected to rise to $8 billion, because of higher prices and increased production.

Prices for other grains have risen, too, encouraging farmers.

“The better the demand, the higher the price, and it’s going to put another 10, 15, possibly 20 cents in the price of a bushel of corn,” said Bill Horan, a corn farmer in Iowa. Corn is about $4 a bushel, which is about 50 cents higher than last year. “It means my wife can go out and buy a new sofa, and I can put new tires on the pickup.”

Prices have also risen significantly for cotton, meat and dairy products. Cotton exports are expected to reach $6 billion next year, up from $4.8 billion this year and $3.5 billion last year, on the strength of a large crop here and tight worldwide supplies that have lifted prices.

Despite such increases, prices for most agricultural commodities remain well short of the record levels of 2008. And the price paid to farmers is only a small portion of the end cost of most foods. So economists predict that the prices consumers pay in the supermarket will rise only moderately this year.

Other economic measures were also promising for the farm sector, which accounts for a small fraction of the overall economy but has a strong impact on the well-being of many rural areas, and a ripple effect for suppliers and other related industries.

Total net farm cash income for the current calendar year was estimated at $85 billion, a 23 percent increase from last year and well above the 10-year average of $72 billion.

About 75 percent of farm production occurs on just 271,000 farms, or 12 percent of the total farms in the country. Those large commercial farms were forecast to average $220,000 in net cash income this year, a 22 percent rise from a year ago. When all farms are taken into account, average farm household income is expected to be $81,670 this year, a nearly 6 percent increase from last year.‹

[DewDiligence]

Barron’s excerpt on ag-machinery vendors DE/CNH/AGCO:

http://online.barrons.com/article/SB50001424052970204076004575616732996960188.html

You probably want to look at companies whose products are absolutely necessary—the farm-equipment makers, because there are only a few in the world. That includes Deere [DE], CNH Global [CNH] and Agco [AGCO]. They all have a big presence in the U.S., and they are absolutely crucial to expanding grain production. They distribute their products around the world, and they form almost an oligopoly. These are great investments, but most people just see them as cyclicals.

…what has changed is that, in most years, farmers now are really making more money consistently than they did before. There is now a payoff for being able to produce more from your farm [i.e. the US government is no longer paying farmers *not* to produce]. So, it's important for farmers to get these high-end machines that companies like Deere produce. Some of these machines are technological wonders.

By the way, agricultural productivity in the United States in the past 30 years has risen almost as fast as productivity in industrial products. People think of farmers as pretty dull people, but they've really improved the way they do business. That process must go forward or we will face starvation. So these are companies we can feel good about, and they remain cheap.

The article in #msg-51844339, about the scarcity of water for crops, makes a good companion read.

p.s. DE reports earnings for the fiscal year ended 10/31/10 this Wednesday (Nov 24).