By MEGGIE. I. FOSTER
Assistant Editor

INDIANAPOLIS, Ind. — Good or great were two words that Purdue agricultural economists Chris Hurt, Allan Gray and Phillip Abbott did not coin or even mumble when describing the future of the ag markets in 2009.

Hurt, Gray and Abbott made their much-gloomy comments and forecast during the agricultural forecast just hours prior to the annual Purdue Fish Fry on Feb. 7 at the Indiana State Fairgrounds.
Hurt, introduced as the second horsemen of the apocalypse, painstakingly described how farmers will face another year of volatility when evaluating their decisions on purchasing inputs and locking in commodity prices.

“The past year, 2008, has been a Jekyll and Hyde year with an absolute boom in the first half and a bust in the second half,” Hurt said. “This just makes extreme uncertainty about planning. We’re kind of in this limbo right now. We need to let market conditions adjust.”

Hurt said that “agriculture is in the center of a terrible recession right now. We’re in a situation where crop prices have come down much more than input costs. And for livestock, the recession has caused the loss of demand and continued rising input costs.”
He went on to explain how the agriculture industry is stuck in a speculative bubble, and “once it bursts, prices still won’t come back quickly.”

The three factors that have pushed ag into the bubble, he described as the housing sector, the investment bank and financial debacle and commodity prices.

He said the housing sector has experienced prices that have moved sharply upward and beyond intrinsic value, while the situation on Wall Street has caused tens of hundreds of millions of dollars to be paid out to executives in yearly income and the commodity market has been the victim of over-inflation because of high expenses.
So while it all plays a role in the ag world, the question remains, ‘how and when will ag recover?’

“It’s unlikely that any change in the housing situation will cause any real demand to enhance components in agriculture. If we get through this the answer will come in the shape of growing world demand,” he said. “We’re going to start asking more questions like will the Renewable Fuels Standard stay in place and what will it’s growing effect of biofuels and subsequent corn prices be for farmers.”

In 2009, Hurt forecasts another year of low prices for crops and said that it’s unlikely that prices will rally up to input costs or that costs will drop crop prices.

“2009 will be a year of recovery, in 2010, we just don’t know what to expect honestly. We do know that we’ll have relatively low crop and animal prices, declining input costs, tight margins, declining interest rates, and we’ll start to soften cash rents and land values.”
For mid-2010 to 2015, Hurt envisions more uncertainty with inflation tendencies, rising crop and animal prices, rising interest rates and rising input costs, “but don’t hold your breath,” he said.
What it means to agribusiness

As for what this all means for agribusiness, Allan Gray weighed in his thoughts to the panel discussion.

“We’re still in a mode of a great deal of uncertainty, and I’m disappointed to say that I too will not offer much good news for you either,” he said. “We’re just still seeing more downsides than upsides. We’re in a period of learning how to deal with volatility and redefining the word working capital. And I’m not convinced we’re not out of the wilderness yet with margin calls.”

One aspect Gray touched on more than his fellow panelists was fertilizer inventory and pricing.

“Fertilizer inventory and prices are in the midst of adjustment,” he said. “They’re involved in a mess and it’s important to understand the issue more broadly,” Gray went on, explaining the long supply chain of fertilizer components such as nitrogen to reach U.S. retailers. “Nitrogen comes from overseas, in many cases it takes 6-9 months to get here. Many retailers are upside down in inventory.”
Still echoing the tune of uncertainty, Gray said that he doesn’t know what the prices of fertilizer will be in the spring of 2009. “There are a lot of producers waiting to see what it will be, nervous about that number,” he commented.

Giving as clear of an answer as mud, Gray said that the if “and when we have the fertilizer in place when we need will dictate fertilizer prices.”

Another forecast Gray provided was in the form of credit for producers.

He said that producers will experience tighter lines of credit in 2009.
“The producers who will avoid the fallout completely will be the ones with a high level of credit worthiness and an allowance for bad debt,” Gray added. “Do you have your ducks in a row, are you worrying about accounts receivable, be careful not to let it get away from you.”

Gray encouraged producers to “prepare for market adjustments, increase resistance to higher prices for seed and chemical fertilizers, shift in crop mixes to less expensive alternatives, and maybe only pick a couple traits in seed selection to reduce costs.”
There are also opportunities for increased precision, he said.

“Control your costs, reduce your waste, are we putting stuff where it has the biggest impact, try to optimize ways to save costs.”

Abbott weighed in on the stimulus’ effect on the agriculture economy and how the nation’s recession may cause a boom or bust for ag. “So I think that $800-$900 billion is in the range of the low side of what would really stimulate the economy,” Abbott said. “I believe we need to spend nearly $1 trillion to truly stimulate the economy, but we need to spend it in the right places.”

Abbott said that tax cuts would be less effective than spending incentives. “Investing in infrastructure, green-energy technology and less tax cuts will be key,” he said. “It needs to be well thought out.”

Abbott emphasized the importance of watching the growth of the GDP or gross domestic product here and abroad.

“For agricultural it matters when trade will come along ,” he said. “Are we going to fix the trade deficit? International capital flow is critical to what will happen in our economy in the future.”

We should expect a long, deep recession, when conventional wisdom is telling us that the optimistic scenario will resume slowly in 2009 and include slow growth into 2010,” he closed.