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Economist: Profitability could return to livestock sector

WILLMAR -- Portions of the livestock sector could return to profitability this year, but the all of animal agriculture will continue to face ongoing economic, export and demand challenges as the country faces a "slow and uncertain" economic recovery, according to AgriBank chef economist James Kielkopf, who spoke Friday at the 2010 Strategic Animal Ag Conference in Willmar.

Unemployment will remain high in the U.S., he said, for up to a decade. Economic analysts are projecting 10 percent unemployment this year and 7 percent unemployment in 2015.

In comparison, unemployment was as high as 25 percent during the Great Depression, Kielkopf said. Famous photographs from the era show people forming long lines at soup kitchens and as migrant workers living in tents.

It is continued or increased federal spending, including stimulus spending that has prevented similar scenes from happening in this economic recession.

"We have some base level of security provided to all in our economy," he said. "The federal stimulus is why we don't see bread lines and the depravation like in the 1930s."

With higher unemployment comes continued depressed demand for higher value agricultural products like meat, which means ever smaller margins for producers, he added.

"Producers must be good risk managers to survive and thrive," Kielkopf said. "We should be hedging as much as possible."

In addition, American meat consumption is starting to trend downward, he said. Even chicken consumption, which has trended up or stayed consistent for years, is starting to drop. American per capita consumption of meat is 43 pounds. of chicken, 39 pounds. of beef, 27 pounds. of pork and 7 pounds. of turkey.

"That's not particularly good news for animal agriculture," he said, adding that the industries face structural changes and more farm liquidations, especially if export markets do not return.

The current recession's impact on world trade was much worse than the trade decrease created by the Great Depression, Kielkopf said.

"Animal agriculture is very dependent on exports," he said. While both exports and imports took a major nosedive in 2009, the trade is starting to recover, providing some hope for improving agricultural exports.

The U.S. exports $10 billion of products per year, including 20 to 24 percent of its pork production, 20 percent of chicken and 10 percent of turkey.

Kielkopf expects the pork industry to at least break even this year, if not turn profitable. The return to possible profits comes after the industry got hit with a triple punch of high feed costs, the recession and the H1N1 flu pandemic. Liquidations by producers and a reduced swine herd should help pork producers see some profit.

Poultry producers should see a modest improvement in prices, which may return to break even levels, he said.

While all of animal agriculture has faced negative returns in the last year, dairy producers faced the worst situation. USDA numbers show that dairy producers' income dropped 45 percent in 2009. However, in 2010 dairy supplies will be tighter, due to a 1.9 percent smaller cow herd than a year ago. That should move dairy prices back into profitable levels.