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Ag is bright spot in slowly growing economy

DANIEL LOOKER 07/26/2010 @ 6:10pm Business Editor

Terry Barr, an economist who heads CoBank's Knowledge Exchange, isn't one of the analysts who's looking for a double dip recession.

Barr expects the U.S. economy to continue growing at a rate of 2% to 3% a year. That won't be enough to create many jobs and unemployment will likely stay above 9% through the end of the year, he said during an interview at the Ag Media Summit in St. Paul, Minnesota, Monday.

"We're creating an environment of so many uncertainties that it's difficult to see companies making the investments to create jobs," he said.

But he thinks it's unlikely that the economy will slip into a so-called double dip recession, either. 

What does it mean for agriculture?

Unlike last year, when farmland values fell by about 4%, he expects them to remain stable this year.

And the troubled hog and dairy industries are recovering, though not fast enough for highly leveraged operations. Midwest dairy farms generally have fared better than those in California and the Southwest.

Unlike the dairy industry, which hasn't cut milk production, the hog industry has scaled back, cutting production by about 3%.. 

"It's a much better outlook for hogs than a year ago," he said.

"Agriculture is one of the stronger sectors in the economy, in part because it's export led to some degree," Barr said.

Strong growth in China's economy is helping keep U.S. crop agriculture strong. So is continuing domestic demand in the restaurant industry.

"People are still eating out. It doesn't seem that we're going to go back to more food preparation in the home," he said. 

Barr also expects corn prices to remain strong, even with some of the political uncertainty about federal support for ethanol. Tighter supplies of corn from last year's crop and smaller 2010 corn acreage will help support prices, he said. And the ethanol industry is stronger than a year ago after some plants restructured and reopened. 

If ethanol loses its tax credit, which expires at the end of this year, "that may be significant for some ethanol plants in some regions," he said. But the industry would still have a mandate for blenders to use ethanol under the renewable fuel standard, he said.  

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