Posted: Thursday, February 03, 2011 1:00 PM
Matthew Weaver/Capital Press
Economist John Mitchell presents his economic forecast to the Spokane Ag Expo and Pacific Northwest Farm Forum audience the morning of Feb. 1.
Farmers may be crowded out of capital markets
SPOKANE, Wash. -- The outlook for agriculture is good compared to other sectors, an economist says, but overspending by the federal government will weigh down the entire economy in the long term.
"The short run seems to look good," John Mitchell, principal of M&H Economic Consultants in Lake Oswego, Ore., said of agriculture.
In the longer term, Congressional Budget Office baseline budget projections call for the $1.5 trillion annual deficit to decrease, but not go away, Mitchell said.
The Debt Reduction Task Force and President Barack Obama's bipartisan commission on fiscal responsibility and reform indicate interest payments on the federal debt, currently 6 percent of federal spending, will soon grow to 17 percent of spending.
Last year, the federal government borrowed 37.4 cents of every dollar it spent, which isn't sustainable, Mitchell said.
Farmers who borrow may experience crowding out in capital markets or risk a spike in interest rates should foreign investors decide to go elsewhere and not buy U.S. debt instruments.
"We haven't had any trouble, but nobody knows when or how that is going to end," he said. "We have a serious long-term problem."
Short-term interest rates have been essentially zero percent since 2008, but long-term interest rates have moved up due to the extension of the Bush tax cuts and an economy that has started to rebound in some areas.
Mitchell said he expects short-term interest rates to increase in late 2011, if the employment rate continues to rise.
"We have an economy that's growing, employment's growing, but there's a long way to go," Mitchell said.
The economic recovery will be a long, national process, Mitchell said, noting that in some areas unemployment levels and housing prices will not return to pre-recession levels for a decade.
Mitchell spoke during the main session of the Pacific Northwest Farm Forum at the Spokane Ag Expo.
Net farm income numbers for 2010 are higher than 2009, Mitchell said, and Washington state cropland values look better compared to housing prices in either Seattle or Spokane.
Nationally, there have been worries about credit, but agricultural loans continue to be available. Mitchell said funds availability at the Federal Reserve Bank of Kansas City is at record-high levels, while collateral requirements are easing.
"In lots of other places, that's not happening," he said, referring to other industrial sectors.
Bad weather forecasts don't bode well for world crop output. Combined with increased spending on food in other countries, that will drive up U.S. white wheat exports about 13 percent higher overall for this crop year, he predicted.
Beef production is expected to decline by 2.5 percent, accompanied by increases in prices, Mitchell said.
Most farmers are likely to have another good year, Mitchell said, as growth in demand continues, particularly overseas. The need for food should maintain the upward pressure on prices, at least for a while.