Wells Fargo agricultural economist Michael Swanson has been around the block a few times having joined the bank as a senior economist in 2000 and logging 4 years at Land O Lakes. The San Francisco based bank remains the nation’s top ag lender.
Last week a Wells Fargo economic forecast session was held in Visalia that drew over 125 to hear Swanson discuss the ag and dairy economy especially as it relates to world trade.
“People look at rising population as a key factor in trade. But it is rising incomes that make the difference. Ag trade has really increased and right now California farmers have never had such a big contribution to their income from foreign buyers compared to the domestic market.”
While these new buyers are welcome “all it takes is some policy dispute to change things in a hurry.” In a nutshell, local farmer are putting more of their eggs in the foreign basket - but will the good times continue?
Swanson says the upshot is that farmers going forward should count on volatility as the new norm as they manage their business.” This means farmers should put aside more working capital than they are used to, do more management of risk,lock in margins when they can “ - all to prepare for what could be less stability in your customer base.
Swanson says an example might be that an almond farmer back in 2005 might set aside $500 per acre in working capital to bring in the crop that with today’s high almond price and huge overseas demand should be $1000 per acre.
Last year was a boom year for US ag trade notes Swanson with net trade (exports minus imports) up 18% for the first 11 months of 2011 compared to the same period in 2010. US ag export during that time were up 26%. Boosting the positive balance was a declining value of the dollar last year.
Looking at dairy exports in dollars, they were up 31% during that same 11 month period compared to the same time in 2010.Even more impressive, net dairy trade jumped to $2.16 billion during the 11 month period compared to $1.4 billion for the same period in 2010 - a leap of 52%.
Imagine that back in 2006,net US dairy trade was a minus $462 million as foreign milk products swamped US exports.
“Without those exports last year, milk would be $4 (per hundredweight) cheaper”- the difference between red ink and a profit.
Swanson says while feed costs remain high, it takes fewer pounds of milk produced to buy a bushel of corn today than it did for most of 2011.Still, the break even mark - around $16 per cwt today, is historically high says Swanson. California dairymen averaged over $18 per cwt in 2011.
US Dairy Export Council says that in 2010, U.S. exports of cheese, total whey products, lactose and other dairy products were valued at $3.71 billion, up 63 percent from the prior year. Export volume totaled 3.04 billion lbs. of U.S. milk solids, up 40 percent from 2009.
