EconSouth (Fourth Quarter 2008)

The Southeastern Economy in 2009

Agriculture Hits a Rough Patch
photo of chicken

Drought, rising costs, and a weaker economy troubled the Southeast's farm sector in 2008. In 2009, most leading agricultural industries face similar problems as well as the risks of a global recession.

Poultry industry expects weaker global demand
Poultry is the region's top cash-producing agricultural product, with more than $9 billion in revenues in 2007 (see the chart). Broiler production in 2008 has been driven by rapidly changing demand and higher input costs. Recent domestic demand has weakened as a result of cutbacks in consumption, exacerbated by a decline in the number of people eating in restaurants. Export growth has remained steady to China and Mexico, but demand from Russia, the top U.S. export market for poultry, was soft for most of 2008 for a variety of reasons, including nontariff import restrictions.

Consumer Spending
Real Estate

The near-term outlook will depend on how the global financial crisis affects key trading partners. Continued market uncertainties could push some regional producers, already troubled by higher input costs and weak financial performance, to cut or consolidate jobs.

Nursery growers hope for rain and a housing recovery
Greenhouse nursery crops are an integral part of the region's agriculture sector, with about $3 billion in cash receipts in 2007. Florida is the nation's second-largest nursery crop producer after California, accounting for about two-thirds of the Southeast's income from the greenhouse industry.

In 2008 the housing slump and ongoing drought conditions adversely affected many Southeastern producers. The outlook for 2009 is highly uncertain given still relatively high costs for fuel, fertilizers, and other inputs that are unlikely to be offset by revenue growth.

Livestock and cattle producers count on Asian appetites
Livestock and cattle operations, with $2.2 billion in revenues in 2007, are present in all Southeastern states. During 2008, drought and higher feed and fuel costs negatively affected regional production and profitability.

Related Links
On the Web:
U.S. Department of Agriculture's Economic Research Service

Like poultry producers, livestock and cattle producers face uncertainties in the near term as beef consumption here and abroad softens as a result of the global financial crisis. But on the bright side, healthy demand from Asian markets, which continued through 2008, could offset some of the negatives. For example, the U.S.-Korea Free Trade Agreement, if eventually ratified, could brighten the outlook for large livestock- and cattle-producing states such as Tennessee and Alabama.

King Cotton is in a decline
The region's cotton industry is contracting, with revenues declining 13 percent, to $1.8 billion, from 2006 to 2007. In addition, cotton acreage dropped nearly 40 percent from 2006 to 9.4 million acres—a 25-year low—planted in 2008. This contraction was primarily related to some growers switching to alternative crops like corn and soybeans, which have had much higher returns than cotton.

Leading Sources of Farm Income in the Southeast in 2007
Chart of Leading Sources of Farm Income in the Southeast in 2007
Source: U.S. Department of Agriculture

Demand for cotton in key global markets softened in 2008, partly contributing to the drop in market prices seen later in the year. Approximately 75 percent of U.S. cotton production is exported. The near-term outlook is uncertain given that year-end 2009 futures prices are still not high enough to offset higher fertilizer and fuel costs.

Citrus battles disease
Florida is the nation's largest citrus-crop producer, netting about $1.5 billion in revenues in 2007. However, Florida's orange crop was estimated in October 2008 at 166 million boxes, 2 percent lower than a year earlier. For 2009, industry analysts expect that large orange juice inventories and lower consumer demand will not change weak price trends. In addition, greening and canker disease will continue to threaten the citrus industry outlook.