Because agriculture is affected by Federal Reserve policy - and by many aspects of the economy overall - organizers of this week's symposium for farmers, manure haulers and custom operators invited David Oppedahl from the Fed's Chicago office to talk about those implications.
The large annual symposium in Wisconsin Dells is sponsored by the Midwest Forage Association, Wisconsin Custom Operators, Inc., the Professional Nutrient Applicators Association and University of Wisconsin Extension.
Interest rates, price levels, national income and gross domestic product as well as monetary exchange rates all affect the fortunes of farmers and agribusiness, Oppedahl told the large crowd Tuesday (Jan. 24.)
When asked by one farmer for a prediction of future interest rates, which are affected for Federal Reserve policy, he declined to offer a prediction, saying it was against policy to talk about that.
Typically the Fed will raise interest rates to stifle inflation and will lower interest rates to stimulate the economy, he said. During this most recent recession Federal Reserve policy also included programs called Quantitative Easing.
They were special securities programs designed to stimulate the economy that were put in place and then phased out. "This is a slower recovery than we had anticipated or wanted. Additional Quantitative Easing has been discussed."
Another farmer wanted to know why home mortgages are at historically low interest rates and there is a great deal of interest in writing those kinds of loans, while farmers' rates are not nearly that low and banks are not very interested in working with farmers.
Oppedahl replied that there is a huge market for home mortgages, which are typically written for fairly long terms. Farm loans, he added, are generally larger in size and written for shorter terms.
There were concerns last summer and fall, he said, about a "double-dip" recession, but more recent data has eased that concern. The graph showing the growth in the economy has bounced around and is still a bit low, but officials don't fear another deep trough in the economy.
Consumption and business investment are beginning to grow and there are better numbers on housing. "At least it's not a negative number," he said, "and consumers are spending more."
Slower recovery
in this recession
The most recent recession has shown a much slower path to recovery than earlier recessions in 1981-82 and in 1974-75. "We're hoping slower, steadier growth will win out. We are now seeing growth in the manufacturing sector."
Unemployment remains high but has moved lower recently. There were more than 8 million jobs lost in the recession and only 1.5 million have been regained, according to Oppedahl, and lengths of peoples' unemployment are running longer.
On the plus side, Americans have become more "productive" on the back side of this recession.
One thing that affects agriculture is the dollar's exchange rate, because it influences exports - a key driver in farm prices. The dollar's exchange rate peaked in 2002 and has dropped since then, making U.S. exports more affordable than they were.
Agricultural exports are surging again, he said, and we export more agricultural goods than we import. Oppedahl said that the U.S. Department of Agriculture predicts exports may dip a little and experience a bit of volatility, but sees continued growth over the long term.
"This is a very positive thing for agriculture."
The Chicago Fed is very interested in agriculture, he said, because it is a very important part of the District's economy. "It is the 'backbone' of the economy in the United States and especially in the Midwest."
The five-state region (Wisconsin, Illinois, Iowa, Indiana and Michigan) produces 40 percent of the nation's corn, soybeans and hogs and 10 percent of its cattle (according to 2010 figures.)
He emphasized the conditions that led to the farm crisis of the 1980s - explosive growth in land values, rents and borrowing among farmers. Rising interest rates in the early 1980s forced many farm loans into default.
The Fed continues to keep a close eye on farmland values because they account for 75 percent of the agricultural asset base.
"They are an indicator of agriculture's health, they affect collateral values and portfolio quality and they have an impact on lending institutions," he said.
Farmers, bankers remember 1980s
He noted that farmers and bankers both seem to realize and remember the lessons of the 1980s during this economic downturn. "They don't want to repeat the 1980s."
He predicted that farmland values in the five-state Fed District would remain strong because of good demand. "This is not the 1980s; the fundamentals favor some additional increase in farmland values."
Farmland values are affected by expected returns, interest rates, government programs, capital investment, non-farm demand and manure management issues.
In some cases farmers have had to buy more land to dispose of manure from their large livestock operations.
Recent economic conditions have led to some interesting situations.
Farmers in urban fringe areas, in one of the District's states, sold land for $40,000 per acre that was slated for development, but when the housing bubble burst and developers went under, the farmers were able to buy the land back for $10,000 per acre, he said.
The "food-seed-industrial" category of corn use is now higher than any other category, thanks to the ethanol industry. Livestock feed usage has been trending downward since 2007, Oppedahl said.
The vast majority of the nation's ethanol plants are in the Midwest and there is strong competition for acreage here, but the industrial use of ethanol has raised feed costs too. "Higher feed costs are an issue for hog and dairy production and consolidation of the dairy industry has continued because of this."
Corn is in relatively tight supply with a 7 percent stocks-to-use ratio. The U.S. Department of Agriculture projects corn to be at about $6 per bushel for the next year, he said.
For more information, Oppedahl suggested farmers visit the website
www.chicagofed.org.
