By LINDA McGURK
Indiana Correspondent

COVINGTON, Ind. — Brace yourself for a tough year and don’t expect the economy – or crop prices – to bounce right back in 2010: That was the message from Chris Hurt, Purdue University agricultural economist, at a farmers’ and agribusiness breakfast in Covington on Friday.

“This is going to be a long and deep recession. Economists are always hesitant to say how long and how deep, but we’re not seeing an improvement in the first half of the year. In late summer or early fall we may begin to see signs that things are not getting worse,” Hurt said. “It’ll be a little better next year, but we won’t be back to what we consider healthy and robust growth.”

Citing figures from the International Monetary Fund, Hurt said the U.S. gross domestic product will be around -1.6 percent this year and 1.6 percent in 2010. The estimates for worldwide growth are 0.5 percent this year and 3 percent in 2010.

But the number economists and others are watching most closely is unemployment, he said. Unemployment is expected to reach 7.6 percent for January and is still rising. Hurt doesn’t believe it will go above 9 percent, however.

“Some people are talking about double-digit unemployment, like what we saw in the early ‘80s, but I don’t think we’ll see that this time because of the stimulus package,” he said.

The proposed federal stimulus package (still unsigned at press time) contains three components: tax cuts for individuals, incentives for businesses to invest and spending on infrastructure and other projects to create jobs.

“I think there’s no question (the stimulus package) will help bolster confidence in the economic system,” Hurt said. “The most important thing in the economy is what’s up here in our minds,” he said, pointing to his head, “and right now that’s fear.”

With the general economy still in a downward spiral, he didn’t have much good news for the farmers who attended the breakfast. “It’s hard to find anybody who’s making money this year. The good thing is that we just came off of two years of good income, record income,” he said.

“The dairy industry is looking at horrible losses this year, the livestock industry looks like a breakeven and the poultry industry is hanging on by its fingernails.”

In addition, corn prices are under pressure because of large inventories of last year’s crop. The only thing that favors a rally is expectations that farmers will cut back on their corn acres, Hurt said. He expects corn to sell for around $3.50 per bushel around harvest time this year.

“I’m trying to lower any expectations you might have that corn will bounce right back to $5 or $6. I think $4 futures for old-crop corn is a selling opportunity,” he explained.

For soybeans, the situation is the opposite. Whereas old-crop inventories are relatively tight, Hurt said the market will likely be flooded with beans next year because of an increase in acres. He put the benchmark for soybeans at $8-$8.25 per bushel at harvest time.

Hurt also discussed the ethanol industry, which is struggling to compete as oil prices have slipped below $40 per barrel. The Renewable Fuels Standard calls for the production of 10.5 billion gallons of corn ethanol this year, but he expects the industry to have excess capacity for three to four years. “A year ago, ethanol investors couldn’t get their plants open fast enough. What a contrast to the end of 2008, when they couldn’t get them closed fast enough,” he said.

Oil needs to be at least $70-$75 per barrel and 20-25 percent more expensive than ethanol at the pump in order for ethanol to be competitive, since ethanol gets lower gas mileage. With lower gasoline prices, demand for higher-blend ethanol, such as E85, has diminished. “We’re not in an environment where a lot of consumers say ‘Hey, I’d like to pay more and get less,’” Hurt said.

He did offer a glimmer of hope in predicting that unemployment will peak in late summer or early fall. Why is this significant?
Historically, unemployment peaks when the recession is over.
“This is not the Great Depression – it’s not even close. It’s just a good old recession,” he said.

The breakfast was hosted by the Western Indiana Community Foundation and Purdue extension in Fountain County.