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External Analysis

MSU is an Affirmative Action, Equal Opportunity Institution. MSU Extension programs and materials are open to all without regard to race, color, national origin, sex, handicap, age or religion.

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External Analysis

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  1. MSU is an Affirmative Action, Equal Opportunity Institution. MSU Extension programs and materials are open to all without regard to race, color, national origin, sex, handicap, age or religion. Issued in furtherance of Cooperative Extension work in agriculture and home economic, acts of May 8, and June 30, 1914, in cooperation with U.S. Department of Agriculture. Arlen Leholm, director, MSU Extension, Michigan State University, E. Lansing, MI 48824

  2. External Analysis External Analysis: • Events beyond the farm gate have a tremendous financial inpact upon your farm business. Let us take a brief look at the Economic Situation --

  3. “These are the best economic times in living memory.” Robert Shapiro U.S. Commerce Department Undersecretary “We broke the record for the longest peacetime expansion in American history.” Lansing State Journal pg. 5B, Jan. 30, 1999

  4. Interest Rates are Low!

  5. Economic Growth is Moderate!

  6. Inflation is Low!

  7. Outlook for Agriculture and Trade PolicyContributed by Dr. David SchweikhardtMSU Agricultural Economics Department

  8. U.S. Agricultural Trade Balance is declining! U.S. Agricultural Exports and Trade Balance 1994 1995 1996 1997 1998 1999 projections: Aug. ‘98 Nov. ‘98 ValueBillion dollars Exports 43.9 54.6 59.8 57.3 53.6 52.0 50.5 Imports 26.6 29.9 32.6 35.8 37.0 39.5 38.5 Balance 17.3 24.7 27.2 21.5 16.6 12.5 12.0 VolumeMillion metric tons Exports 127.5 169.7 158.4 147.3 142.0 148.7 149.8 Data reflect years ending Sept. 30 (source: USDA World Agriculture Outlook Board, Economic Research Service, Foreign Agricultural Service)

  9. Trade Balance Impacted by: 1. Asian Flu. . . Demand is down 2. Brazilian Currency Devaluation • Makes U.S. exports relatively more expensive

  10. Three Key Elements ofFreedom to Farm • Target prices replaced with fixed payments • Production Flexibility Contract payments (PFC) • Setasides and base rules eliminated • Minimal safety net provided by loan rates

  11. Income Protection PFC Payments • Less protection than target prices Loan Deficiency Payments • Protection for entire crop Market Loss Assistance Payments • Paid in 1998 at rate of 50 PFC

  12. Policy Consistency Timing of payments • A factor in cash rent/land price inflation? Increasing planning uncertainty • Can we expect changes in payments?

  13. Budget Control Unexpected budget costs in 1998 • Loan Deficiency Payments $4.0 • Market Loss Payments $2.9 • Disaster Assistance $2.6 • 1999 PFC payment advances $2.9

  14. Policy Outlook:Short-term and Long-term In 1999 • Renewal of the loan rate/PFC payment debate • Revenue insurance • Crop insurance • Farmer savings accounts

  15. Policy Outlook:Short-term and Long-term In 2002 and beyond • The farm bill, once again All alternatives on the table

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