1. Agricultural Economics “Takes a Licking and Keeps on Ticking” Economic Outlook for Fall 2005 Craig Infanger and Larry Jones

2. Agricultural Economics Modest Economic Growth Despite “Jolts”: Iraq War, Energy Prices, Katrina/Rita Annual Change in Gross Domestic Product Percent Forecast: 3.5 - 4%

3. Agricultural Economics Recession In The Rear View Mirror Quarterly Change in U.S. Gross Domestic Product Percent

4. Agricultural Economics Monthly Net Change is U.S. Employment, 2000-2005 (thousands of nonfarm jobs) Source: Dept of Labor 125 – 150,000

5. Agricultural Economics Unemployment Rates U.S. and Kentucky Monthly Rates Source: U.S. Dept. of Labor, Kentucky Workforce Cabinet % Civilian Labor Force

6. Agricultural Economics Consumer Price Index All Items and Energy Source: BLS *projected September: CPI up 1.2% Energy up 12%

7. Agricultural Economics

8. Crude Oil Prices Recede from $70 OPEC Price Band $22-$28

9. Agricultural Economics Natural Gas Prices Will Remain High

10. Agricultural Economics Natural Gas Prices Will Remain High Wall Street Journal 10-17-05

11. Agricultural Economics U.S. Annual Energy Flow Quadrillion Btu

12. Agricultural Economics Era of Low Interest Rates Ends Key Interest Rates, 2000-2005 Percent Wall Street Journal 10-13-05

13. Agricultural Economics Twin Deficit #1: U.S. International Trade Balance Source: Dept of Commerce Billion$ September = - $60B 2005 projected = -$650B

14. Agricultural Economics Source: Federal Reserve Bank The Downward Slide of the Dollar Since 2002 20%

15. Agricultural Economics Twin Deficit #2

16. Agricultural Economics Components of the $2.6 Trillion FY06 Federal Budget Source: OMB Other 18% Net Interest 7% Medicare 12% Defense 18% Social Security 21% Income Security 14% Health 10%

17. Agricultural Economics Actual and Projected Federal Budget Surplus and Deficits, FY95-08 Source: OMB and CBO Billions $ FY05 Actual = $319B

18. Agricultural Economics “Americans prefer to be deceived rather than face the hard choices of doing something about budget deficits… [We] dislike deficits but dislike them less than the alternatives – higher taxes or lower spending … pragmatic politicians respond with massive borrowing schemes that seem to promise something for nothing.” Newsweek, 2/21/04

19. Agricultural Economics The Economic Outlook for Agriculture Dr. Keith Collins, USDA Chief Economist: “While uncertainty remains over the sustainability of global recovery, rising interest rates, the value of the dollar, …the budget deficit, trade negotiations, emerging competitors, animal diseases, and oil prices, U.S. agriculture appears strong enough to deal with the uncertainties ahead.” Congressional testimony, September 29, 2005

20. Agricultural Economics

21. Agricultural Economics Record Cash Receipts & Cash Income in ‘04 2005 Second Highest on Record Billions$ Source: USDA *forecast 1995-2004 average $240 +21 -194 = $85B

22. Agricultural Economics Kentucky Farm Cash Receipts Break $4B *estimated Source: USDA, NASS Billion$

23. Agricultural Economics Government Payments Direct Payments to Kentucky Farmers Million $ 12% 25% 27% 24% 34% 17% % = gov’t payments as percent of net farm income 16%

24. Agricultural Economics The Disappearing Agricultural Trade Surplus Billion$ *projected Source: USDA, ERS All-time record ag exports?

25. Agricultural Economics General Economic Outlook Modest economic growth for U.S. and KY despite “jolts” New inflation concerns due to higher energy costs and rising interest rates The drag on economic growth = record imports + high oil/gas prices + moderate consumer spending Twin deficits (Trade and Federal Budget) limit choices and ability to respond to new needs and emergencies

26. Agricultural Economics Agricultural Outlook Optimistic general market outlook despite rising interest rates, higher energy & input costs, etc. Steady ag exports but rising food imports = disappearing trade surplus Near record cash receipts + USDA payments + Rising land values = Strong farm balance sheet (but risk of too much expansion?) In place: Farm safety net through 2007 (commodity programs, crop insurance, CRP) Not in place: Trade agreement/WTO, agreement with Brazil over cotton subsidies, reopening Asian livestock export markets after BsE