Most of the attention at the American Society of Farm Managers and Rural Appraisers 79th annual meeting in San Antonio was on the U.S. economy and its impact on agriculture, especially the value of farmland.



Presenters provided more food for thought than answers. "What will spark economic recovery?" was the main question asked about the general economy and the ag economy.



"Think back to the 1980s farm crisis," Jason Henderson with the Federal Reserve Bank of Kansas City, instructed the crowd in opening-day remarks. "When asset values fall and you have a lot of debt, that is a recipe for bankruptcy. The housing industry is now going through the same things we experienced in the 1980s in the farm sector-too much debt and asset values falling."



As Americans, "we have lived above our means," Henderson noted, and a lot of debt will need to be paid off before extensive new spending. This is not supportive of economic recovery.



"Employment is a lagging indicator. It will be the last thing to rebound," he said in explaining that history would suggest optimistically that recovery from this recession will not begin before the second half of 2009.



Another economist that focuses on the agricultural economics worldwide and rural U.S. agrilending and banking, David Kohl, Ph.D., economist professor emeritus, Virginia Polytechnical Institute & State University, rated the potential degree of recession as red light, yellow light and green light, each light designating the length and depth of a recession that might occur. He listed variables that could align for lengthening the recession.



Green light is the best we can expect; it is "recession lite" lasting around seven to eight months, but this only has a 25 percent chance of occurring, according to Kohl.



Yellow light recession would probably last 12 to 17 months and is a medium recession that falls into the rule of thumb economics since World War II of five good years for every one recession year. He suggests a 50 percent probability for this current recession.



A red light recession would be a "nasty one," Kohl suggested. It would be characterized with a major worldwide recession; world stock market corrections of 40 percent to 50 percent, oil prices possibly shooting up to $150 to $200 a barrel; housing construction starts being less than 750,000 a year in the U.S., unemployment in the U.S. between 10 percent and 15 percent and business borrowing and consumer interest rates in double digits.



U.S. ag producer concerns
Kohl said U.S. agricultural economics are quite dependent on China. Its economy has been growing at about a 10.6 percent rate for the past 20 years. "That is unprecedented in the world economies for that extended period of time, but it was false. The remake of Beijing in the last decade was about one-third of their GDP (gross domestic product)," Kohl said. And since the Olympics, China has pulled back on its internal investments.



What scares Kohl is that he believes "China has to grow at about a 10 percent rate to stimulate U.S. commodity prices. If their growth drops back to somewhere around 5 percent, then we are in for a nasty one (U.S. recession)."



Rick Henderson, Henderson AgriBusiness Consulting and recent retiree from heading Rabobank AgriFinance division, said U.S. producers must have a global awareness and plans in place to take advantage of opportunities to make a profit.



He suggested that the ag lending environment has changed, whether farmers yet realize it or not. "Farmers will have to be much more proactive in their financial planning," he said.



Farmers and ranchers will have to develop plans of action that include different "what if this happens" scenarios because Henderson sees high volatility in commodity markets continuing in the foreseeable future. Everyone in agriculture has to be aware of the increased risks, working capital required and proper debt structure to limit risk.



The fomer Rabobank executive said, "In the short term, risk management is required to deal with the volatile environment that we are in. We are in a very dynamic situation in terms of production, marketing and lending. I think marketers and borrowers need to have a very proactive financial plan. They cannot think it is business as usual with their local lender, financial institution or whoever."



Production agriculture and costs
Several speakers provided specifics related to production agriculture in the U.S. Carl Anderson, Ph.D., Texas A&M University, went through the commodity markets one by one with optimism for producers other than cotton growers. "We just don't have a strong world demand for cotton," he said. He noted that use of cotton within the U.S. textiles industry is about 40 percent of its one-time peak, and, therefore, cotton export is a necessity.



Anderson condemned the commodity market system that encourages speculative investment. He said the commodity market trading was "set up for the buyers to be the users," which has not been the case, especially in 2008, with index funds and hedge fund speculation.



James Richardson, Ph.D., Texas A&M University, Agricultural and Food Policy Center, suggested that land prices will take a dip during the recession. Citing the national average of $2,970 for crop land in 2008, as reported by the U.S. Department of Agriculture, he said, "I don't think we can hold this price (in 2009) based on the price of commodities."



He also said, "Crop land value has run away from crop land rent." Therefore, he said, land rents in general aren't out of line with where commodity prices should settle out for 2009 even though cash rents nationally were up 15 percent each of 2007 and 2008. The average cash rent in 2009 is unlikely to show much of an increase, and cotton and rice farmers definitely cannot afford to pay higher rents.



From interviews with typical farmers throughout the Midwest Corn Belt, Richardson said he calculated that if corn prices reached $4.70 per bushel again, then land rents in general could be pushed 10 percent higher without concern.



Farm bill and ethanol impact
Richardson was on the program a second time during the meeting to explain aspects of the new farm bill including the payment limitations. He thoroughly outlined the Average Crop Revenue Election (ACRE) Payment program but noted it is taking a lot of calculations to determine who would or would not come out ahead in opting for ACRE. "There are farms that are going to be better off with ACRE," he said. Farmers should not throw up their hands, give up estimating, predicting and calculating whether to sign up for ACRE in 2009.

Richardson explained the various tax credits and program changes related to biofuels. Even though some taxpayers want the import tariff removed from foreign ethanol, Richardson said it is impossible. "If we have the tax credit (for ethanol blending), then we have to have the tariff,. He said U.S. taxpayers are not going to support paying oil companies or blenders 45 cents per gallon to blend foreign ethanol into foreign oil gasoline.



The Midwest ethanol business continues to impact rural economies, and the impact of low to no ethanol plant profits because of lower oil prices has not been fully accessed as yet. Corn prices appear to be directly tied to the price of oil without expectation that the two will be untied in the near future.



One appraiser looking at rural business property noted how railroad access, storage construction and use of small elevators for originating corn supply to ethanol plants have impacted property values dramatically.



Jeff Berg, ARA, and owner of Crown Appraisals, Inc. Barnesville, Minn., said steel prices for grain storage (flat and bin) have increased dramatically during 2008. The result is that new grain storage construction is averaging about $5 per bushel for concrete tube towers, $3 to $4 per bushel for steel bins and about $1.25 to $1.50 per bushel for flat steel building storage.



His insight is that elevators do not want to see grain stored on the farm and bypassing the elevator before heading to ethanol plants or hauled to river shipping markets. The competitive elevators are increasing drying capacity to provide service along with increasing receiving capacity to reduce truck waiting time.



Additionally, elevators are constructing more flat storage and huge grain bins to reduce cost per bushel handling expense.



It should be noted that Berg was presented with the Appraisal Professional of the Year Award by Rabo AgriFinance in cooperation with ASFMRA.



In total, approximately two dozen speakers during the meeting addressed issues impacting or being impacted by the world and U.S. agricultural economic situation.