Europe’s widening financial mess is a source of growing concern in American agriculture, raising the specter of a global recession that would curb demand for many farm products, such as Tim Haas’ Kobe beef.
As Europe’s debt crisis roiled the world’s financial markets in recent months, Haas, who helps run Kearney, Mo.-based Premium Proteins LLC, said he seen customer demand erode. That weakness likely sets the tone for 2012, Haas said, and calls into question his plans to start selling the company’s products in Europe next year.
“I am more worried how it would affect the world market as an indirect cause of a world recession,” Haas said in an e-mail, referring to further deterioration in Europe. “The last two months are indicative of a very soft year for next year, both in exports and domestic.”
For Haas and other producers, the prospect of a break-up of the euro or a Europe-led downturn raises potential for a repeat - or worse – of the damaging aftermath from the 2008 financial crisis. In 2009, U.S. agricultural exports sank 16 percent from the previous year, to $96.3 billion, according to the Agriculture Department, with dairy products among the hardest hit. Net U.S. farm income tumbled 27 percent, to $61.6 billion
A recession in Europe would threaten the fragile U.S. economic recovery and likely prompt budget-tightening among consumers still grappling with high unemployment, meaning they may forgo more-expensive foods, such as steaks and chops, and seek cheaper store-brand milk, analysts say.
With Europe, “the impacts are indirect, but potentially large,” said David Anderson, an agricultural economist at Texas A&M University.
“The volatility caused by the events in Europe moves our stock market constantly, right or wrong,” Anderson said. “Those extreme moves in the stock market cause a lot of concern among consumers. That fear, uncertainty, instability… does have impact on how people spend. Those effects then move through our economy.”
Europe produces much of its food and does not rank among Japan, Mexico and other top foreign buyers of U.S. beef, pork and dairy products. This year, U.S. farmers benefitted from an export boom driven partly by China, whose economic growth continued to outpace the rest of the world.
Still, even with U.S. farmers about to close out their most profitable year on record, cracks in agriculture’s outlook have shown up with increasing frequency.
Corn futures have tumbled 28 percent from a record high in June as exports sagged. Smithfield Foods, Inc., the largest U.S. pork producer, earlier this month said operating profit in its international business fell 61 percent in the previous quarter. U.S. beef exports declined three consecutive months after hitting a peak in July, according to Agriculture Department data.
“If the euro falls, it will have wide spread impacts on economies of other countries, including the U.S.,” said Robert Cropp, a dairy economist at the University of Wisconsin in Madison. More sluggishness in the U.S. economy would curb demand for milk and other dairy products, he said, while a likely appreciation in the dollar would curb exports.
“Whether the overall impact would be a 2009 repeat is not clear,” Cropp added. In 2009, U.S. dairy product exports plunged 44 percent, to $2.26 billion, according to USDA data.
U.S. beef and veal shipments to the European Union accounted for slightly less than 3 percent of total U.S. exports by volume and about 4 percent by value in 2010. Mexico was the largest buyer, at nearly 22 percent of total U.S. beef exports by volume.
The EU accounted for about 1 percent of U.S. pork exports by volume in 2010 and about 2 percent of dairy product exports.
Whether a heavily-indebted country such as Greece leaves the euro or the common currency falls apart completely remains to be seen. About 45 percent of 190 money managers in a Bank of America/Merrill Lynch survey said they expect at least one of the 17 member countries to leave the euro zone in the “foreseeable future,” the bank said in a Dec. 13 statement
As agricultural producers and most everyone else keeps a wary eye on Europe, Texas rancher Bill Hyman is taking a sanguine approach. Europe’s woes are just another item on a list of things a produce has to be concerned about but can’t necessarily control, according to Hyman, Executive Director of the Independent Cattlemen’s Association of Texas.
“Cattlemen are always concerned with the economy both domestic and foreign,” Hyman said. “We worry about drought, disease, high feed costs, herd rebuilding, government regulation, animal activists, and now I guess we will worry about the European Union.”