An emphasis on world and U.S. agricultural economics and the need to counter ignorant intrusion into farming, ranching and rural businesses were the topics of major presentations at the American Society of Farm Managers and Rural Appraisers' annual meeting in Orlando, Fla.
In what has been claimed to be more than a year of recession recovery, the gross domestic product (GDP) grew at only about 2 percent, much slower than the typical 3 percent to 4 percent first-year recovery from a recession, noted Jason Henderson, branch executive and vice-president Omaha Branch of the Federal Reserve Bank of Kansas City. One of the culprits is the net export/import ratio that puts the U.S. on the wrong side of the ratio. "It is not that we are exporting less, but we are importing more," he said.
U.S. ag exports have rebounded to possibly be the second highest on record, and exports are broad-based from both crop and livestock products. "China has been the major player in the export/import markets," he said.
The value of the dollar is another concern for agricultural exports. He explained that as the "value of the dollar falls, commodity prices go up, and as the value of the dollar rebounds, the commodity prices come down. It is a nice little roller coaster ride we have been experiencing since 2006."
Henderson explained that inflation is a concern. If too much money becomes available for spending, then inflation could be the result. "If we are going to pull money out of the system (to avoid inflation), the way is higher interest rates."
Specifically to agricultural finance, Henderson said, "Ag banks are holding up fairly strong." The financial situation in rural America is not perfect. "Delinquency rates on ag loans have risen from all-time lows. Delinquency rates from 2006 to 2009 were almost down to 1 percent. They are now approaching 3 ½ percent and rising. A lot of this delinquency is centered in the livestock sector." He thinks delinquency rates will plateau going forward into 2011 as the outlook is for higher farm income including livestock producers.
As for land values, Henderson said, "Land values are rising faster than cash rents." A fix in the ratio of the two will either be higher cash rents with optimism that commodity prices will stay high or land values backing off. Even if land values are at a bubble high and have to correct, the fortunate thing, Henderson said, is that land owners have a lot more equity in their land investment than they did in the 1970s. Debt levels that reflect the ability of farmers to repay loans are much better today than in the past.
Supply and Demand
Later in the annual meeting, Steve Elmore, Pioneer chief economist and marketing manager, provided his economic point of view that paralleled Henderson's presentation in some ways but provided additional insight on projected crop production and pricing.
He noted that the average U.S. farmland price is projected to increase 3.1 percent for 2011 based on the economics of forecasted commodity prices. At the time of the meeting at the beginning of November, the spot price index for all commodities was higher than in 2008's run up in prices.
In reference to corn specifically, but also other commodities, Elmore said, "Price is dependent on 2011 production, government policy and the macro-economy." He referenced the carryover potential of grains in the world as a main concern and a mover of prices.
The carryover level for corn is projected to be 6.7 percent, the lowest level since 1994-95. While explaining corn prices and supply, Elmore talked about China wanting to be self-sufficient in corn supply, but what they do is "import DDGS's to make their balance sheet work."
Elmore said another wild card for corn is ethanol production. With a slow-down in the economy, the U.S. has not been using as much renewable fuel, but the Renewable Fuels Standard has not been adjusted higher or lower. The RFS is not being increased, and, therefore, "corn prices should not have run up at all" upon announcement of newer cars being able to use a 15 percent mix, Elmore said.
Livestock production and dairy are the other big users of corn, and the Department of Agriculture profit projections for hogs, cattle and dairy are positive for 2011, although barely, with dairy being the least stable.
"Soybeans are an export market," said Elmore, "and this is highly dependent on exchange rates." So, where are soybeans being exported — more to China than other countries. Over the past 15 years, China has repeatedly said they are not going to import additional soybeans, but they have continued to import at high volumes. "Believe what they do, not what they say," Elmore said.
In general, Elmore said, corn is needed and priced accordingly. Soybeans are priced to encourage production. Growers have planted more wheat. Cotton stocks in the U.S. and worldwide are low and prices reached a record $1.39 per pound during October. The end result is that "we are going to have higher food prices and higher clothing prices," Elmore predicted.
"This year (2011) is the hardest I've ever had for forecasting acres," Elmore said. "Are market prices going to move dramatically before planting? It is going to be interesting." He anticipates major volatility in prices.
Completely different than the hour-and-half presentations on economics was the same length of time filled by Bruce Vincent, a logger from Montana, who explained the "responsible environmentalism" needed by rural residents.
Vincent explained how rural agricultural operations are "visible and easy" to attack. He used his experiences in Montana as examples of how the timber industry initially lost to environmental groups and government policy makers. Non-science-based unsustainable regulations and practices were enacted before local residents and forestry businesses knew what hit them.
"Abusing a well-intended law" is how Vincent explained the use of the endangered species act against loggers and small town residents. He said it is still a major piece of legislation being used against farmers and ranchers.
An example was the plan to introduce more than 100 grizzly bears among the generational residents of the state. As one regulator even agreed, it would be laughable to try and introduce grizzlies to more populated regions. "But they were going to steamroll my rural area because we were seen as politically impotent," Vincent said. It is almost as though "our rural populations are disposable."
Environmental groups have "turned a social movement into a business" supporting high salaries and many jobs, explained Vincent. They are using laws on the books from the 1960s enacted to protect planet earth, but which are "showing their age," he suggested. "Common sense is not going to suddenly break out," and he said, "the real enemy is public ignorance."
Vincent went on to say "democracy is not a sideline sport," and issues have to be faced in a straightforward manner. The sides of environmentalism discussion cannot be "preserve or destroy" the environment, and the true environmentalist — farmers, ranchers and rural businesses — "need to articulate the middle ground."
He asked each person in the audience to be activists for agriculture. Rural residents have to confront those that would end rural businesses. Show up at local, regional and national meetings, he said. "Take one hour a week as part of doing business" to make a difference.
That investment of time lead Vincent to establish Provider Pals, which is an organization that matches agricultural producers with school classes to allow children to learn the truth about agriculture from a real producer via e-mail and other communication tools and eventually results in a face-to-face meeting.