Dancing for Rain ... and Snow: Snowy Weather Could Be Major Benefit or Killer for Agriculture in '11 Depending on Region, Locale

By Shappell, Brian | Business Credit, February 2011 | Go to article overview

Dancing for Rain ... and Snow: Snowy Weather Could Be Major Benefit or Killer for Agriculture in '11 Depending on Region, Locale


Shappell, Brian, Business Credit


Everyone's heard the stories. Talk of U.S. economic sectors in 2010 was dominated by just how bad things were, especially in areas such as residential and commercial real estate as well as banking and lending. And, when the proverbial grim reapers did break character to speak of success, they almost exclusively focused on the manufacturing sector.

However, quietly performing in exemplary fashion for much of 2010, especially the middle portion of the year, was the agriculture sector. Crop yields and quality in several regions were top-notch, leading to a bit of a windfall for farmers who both planned well and got a little luck from the weather. And, with massive problems within the agriculture sectors of many trade partners in the Eastern half of the world (Russia, Ukraine, Australia, Pakistan), it appeared as if there were few reasons not to pop the champagne corks in celebration.

The final 2010 release of the Federal Reserve's Beige Book roundup of economic conditions, which tracked conditions up to mid-November, found widespread positive news: "The Chicago, Minneapolis, and Dallas districts reported large to record-setting yields for certain crops ... Contacts m Chicago noted that even with higher feed costs, margins for livestock producers remain positive, Strong global demand and tight supplies pushed cotton prices to near historic highs for growers in Atlanta and Dallas. San Francisco noted that reductions in overseas yields, combined with the lower value of the U.S. dollar, are helping boost domestic farm sales." According to Chris Kuehl, PhD, NACM's economic advisor and managing director of Armada Corporate Intelligence, there was a large increase in virtually every U.S. farm commodity in 2010.

"Rice was up, corn was up, cotton was up," Kuehl said. "There was not a commodity that was not up at least 50%. However, he pointed out that, real state, painting with a broad brush can create a misleading national picture. "It was universally good if you had a good crop, but not for those who were in the wrong place at the wrong time [from a temperature or precipitation standpoint]. Still, there's not a lot of run left in that trend. It's a whole new ballgame now."

Indeed, as New Year's Eve approached, warning signs of an end to the Ag party were glaring. Early winter weather in the U.S. southeast threatened to start off 2011 with a resounding thud, rather than a celebratory pop. And even for credit professionals who aren't in agriculture, the early trends of 2011 could carry significant consequences, one way or another.

"They should be watching; the first indicator of an inflationary rise is going to be food." Kuehl said.

Frozen Florida

Valerie Novakoski, controller for Intergro Inc., said the biggest concern for one of her credit groups is low temperatures in Florida. Because the state is rarely as cold for as long as was the case in December, those in the industry are bracing for losses because of the surprising late 2010 freeze.

"People that used to do 30- and 60-day terms are getting 180 days," Novakoski told NACM. "The concern is their loans are going to come due, and they also have to pay us. So, we don't know what's really going to happen."

While worry is palpable, catastrophic losses are far from a foregone conclusion. There is still hope that damage to crops caused by the early southeastern freeze will be minimal or moderate. And, on the plus side, the market for many of the products grown there, such as tomatoes, remains very strong. Those who did not lose their crop amid the freeze "are going to make a ton of money," Novakoski speculated.

Agriculture's defining 2011 trends appear, like would-be airplane passengers during a snow storm, to be on stand-by, and credible forecasting likely will give way to perhaps the most noticeable "wait-and-see" approach in a couple of decades. …

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