Two economist highlights from ASFMRA
As for the drought, he noted, “You don’t get out of a drought in one year.” He then pointed out there was negative impact for three years in droughts of 1934-36, 1954-56 and 1987-89. Although there are different above average rainfalls suggested as necessary to pull the Midwest and Plaines regions out of drought, Elmore said the average would be about 12 inches above average to exit the drought in 2013.
As for the farm bill and politics, he described forecasting based around the farm bill as the same as driving with your lights on in a heavy fog and still not being able to see much of anything.
Michael Swanson with Wells Fargo
“Everything is connected; we just can’t see how,” said Michael Swanson, ag economist and consultant for Wells Fargo, noted in opening his presentation.
He said, “We have an incredibly low alternative financing environment. Earlier this year, we had tender treasury stuck at 1.4 percent; that meant the market, in its infinite wisdom, perfect market, was willing to give the U.S. government money for 10 years at a miserable 1.4 percent return.”
In looking at farmland values, he said predictability is not fully flushed out but sees ultralow financing to be unsustainable. “Farm income has been a big driver in the increase in the value of farm and ranch assets. But a bigger piece, twice as much of the valuation in the current model is coming from the ultralow financing situation we find ourselves in,” Swanson said.
Swanson questions what will happen when the price of financing goes up dramatically in the next three to six years. “What is that going to do to the net present value of farm and ranch income valuations? It is going to have a negative impact. We know that.” he said.
“I keep telling people it is so much more important to have discipline than intelligence when it comes to investing,” Swanson said. “So many of us know these things are wrong, but can we bring ourselves not to operate on these things.”
“If you don’t even entertain a different price set for corn, you are never going to get enough doubt in your mind to really do a good analysis." He does not dispute that population and income are primary drivers of demand for agriculture.
But Swanson disputes the projected populations of some of the countries of the world as calculated by the United Nations Food and Agriculture Organization. He thinks they are fundamentally flawed. The example he used was Nigeria. “They have Nigeria, of all countries, going from 150 million people to 1 billion people in their long-term forecast. Nigeria, Africa, is going to have a billion people in 2100. That is a long way out, but if Nigeria were to ever hit that number that is forecasted, they would have 8 ½ times the population density of China. Now, you tell me that number is really going to happen,” he said.
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