ddipietre

     Sometimes its hard to tell if recent events, like the generalized global economic meltdown, cast a shadow that is a vapor and will burn off as the sun comes out again, or whether they are a harbinger of a more persistent, new strategic environment in the global market and political system.

     There is certainly a feeling in the air that some substantial things have changed but time will tell if they are persistent or even fully realized.  Some of the things which form the emerging global situation that U.S. agricultural will operate in include:

     As the US and global recession deepens, the monetary authorities in the UK, the EU and the US are driving interest rates to record low levels.  Today the FED cut the Federal Funds rate, the overnight lending rate to banks, to a range of zero to 0.25 percent which is the lowest rate on record.  The action is an effort to make holding cash by banks so disadvantageous that they are tempted to begin lending in order to earn a return.  The action is meant to increase the money supply, an action which is deemed safe now since its primary danger (inflation) appears as no immediate threat due to slumping demand and rapidly falling prices for everything from housing to gasoline. 

     Nicholas Kristoff, an editorial writer for the NYT has recently written an opinion piece calling on President-elect Obama to take the bold step of changing the name of the Department of Agriculture to the Department of Food. http://www.nytimes.com/2008/12/11/opinion/11kristof.html 

     The main reason behind his recommendation is to unseat the powerful agri-business lobby from controlling government policy, that among other things has favored factory farms raising as many as 5,000 hogs and that these "large operations receive, in effect, a $24 subsidy for each hog raised. We face an obesity crisis and a budget crisis, and we subsidize bacon?"

"When you are out of cash, you are out of business", is a truism which should be on the top of everyone's mind these days.  With the bankruptcy filing of Pilgrim's Pride and VeraSun we are witnessing the turmoil and equity destruction which has been brought on by the tremendous volatility in commodity prices experienced over the last year.  This volatility is directly related to (but not completely the result of) government policy interventions, especially ethanol policy.

     China is facing some serious internal issues related to the global slowdown that is underway.  Growth is certainly slowing in China as a direct result of weakening global demand for its products.  This poses some significant problems for the Chinese economy since it is widely believed that China must maintain a 7-9% annual increase in GDP to maintain employment stability.  Last year growth was almost 12% and has been double digit for many years.  Forecasts for 2009 have been as low as 5-6% up to the minimum levels in the target range.

With the news that the EU is officially in recession and all of the signs point to the same thing for the U.S., the swine industry in the United States is facing a critical challenge related to demand.  After more than a decade of continuous growth in demand for U.S. pork, the industry is likely to face the inevitable leveling off or much more likely, a decline in demand for 2009.  Some are forecasting up to 10% less exports for 2009.  As the EU and the US enter recession, demand for consumer goods has already begun to fall, in some cases at record month over month rates. 

It has become obvious that neither industry spokespeople or producers can articulate a convincing defense for the use of typical industry standard stalls in farrowing or gestation.  Because of this, and unless this changes, the industry can expect the geography over which they will not be allowed by law will expand until they are a thing of the past.

While those who hear the arguments against crates don't analyze it at the level of philosophy or academic ethics, the priniciple reasoning which is mounted to oppose crates comes from natural law and a kind of anthropomorphic appeal to the modern version of utilitarianism.  

One of the more revealing outcomes of the voting which took place this week throughout the nation was centered in California.  The people of California followed the trend in Florida and Arizona to adopt the position put forward by HSUS requiring that confinement structures for all farm animals be revised to allow more space.  Don't be too quick to dismiss this as the expected outcome from the "left coast".

As we watch the markets throughout the world plunge trying to find a trading range, we are witnessing the global market reset to economic fundamentals.  Before you think this is unambiguously bad (the reset) consider that this entire event spanning the last two to three years was set in motion by government policy actions and the flood of liquidity beginning after the September 11th attacks.  The market is simply correcting now what government policy actions have caused, a massive destruction of the mirage of paper wealth they created.

     Oprah took on California's proposition 2 which seeks to provide farm animals in confinement with room to turn around, stand up, lie down and fully extend their limbs.  In a series of video-taped vignettes, two systems of production were visited for veal calves, pork production and egg-layers which sought to contrast these systems on the basis of the room provided the animals.  In general, they were reasonable representatives of confinement systems vs more open or free range approaches.  The exception would be the veal video where an atypical confinement system was highlighted