U. S. farmers may face some troubling times as they deal with uncertain support for traditional government agriculture programs, a decline in research funding and increased pressure from regulatory agencies.
“But it’s still an exciting time to be involved in agriculture,” said Neil Conklin, president of the Farm Foundation in Oak Brook, Ill.
Conklin was a keynote speaker at the Oklahoma Rural Economic Outlook Conference at Oklahoma State University in Stillwater.
Conklin said despite signs of recovery the recession effects still linger with slow growth, low interest rates that could led to deflation, dismal prospects for real estate, persistent imbalances in global trade and finance, and plenty of downside risk.
Unemployment continues to dog the U.S. economy and improvements may take longer than usual following a recession. Unemployment in the Mountain and Plains states has been less severe than on the coasts. “These areas are less dependent on manufacturing,” Conklin said.
Emerging economies key
The good news is that emerging economies lead the global recovery. “And those economies still look to the United States for products.” That includes agricultural commodities, which will be in demand as developing nations’ incomes improve and citizens seek more protein in diets.
A weak dollar also supports increased agriculture commodity trade.
He believes the United States can expect tighter fiscal policies, but that the fiscal stimulus bills were effective. “They worked in spite of what people hear,” he said. “Without the stimulus, unemployment would have been 3 percent to 4 percent higher. We can’t prove that definitively, however.
“This doesn’t mean we couldn’t have done a better job (managing the stimulus), but it helped.”
He said the current fiscal path the United States is following “is not sustainable” and will result in a $20 trillion debt by 2015. “Both Republicans and Democrats realize that it’s a problem. They have policy differences on the way to fix the problem, but it’s a positive sign that they both recognize it. A split party control may be helpful, but we have to overcome the political gridlock.”
Low interest rates
Interest rates will remain low for at least another year and possibly longer.
The economic ups-and-down affect agriculture, but perhaps not as negatively as they do other segments of the economy. Land values remain strong and represent the one positive in real estate. “Demand for agriculture land is fueled by equity capital returns. Agriculture looks very good in relation to other assets and has remained steady over the past few years.”
Energy will influence the agriculture economy. “Corn and oil are closely related in price, which will be dependent on policy. We can produce enough ethanol to meet demand as long as we have the blend wall.”
Up to that blend limit, 15 percent with a recent EPA announcement — “we can produce to demand.”
Beyond that, Conklin says, are problems with infrastructure for blends such as E-85. “We will be limited until we get a fleet of cars available and also infrastructure improvements including investment in new pumps.”
He said some demand may not be price sensitive. “The military has a big interest in direct-to-hydrocarbon fuels. The military has aggressive goals and economics is not as important. Remember $300 toilet seats?”
He said feedstocks for “drop-in fuels” may come from switchgrass, miscanthus and willows, among other biomass products.
Strong corn prices
Corn prices remain strong. “We are looking at the third largest corn crop in history and prices are near $6 a bushel, so demand is holding up and will remain strong. Food prices also may increase, but will be more modest than some think.”
Wheat and other grain prices have trended downward for years. “Increases in production pushed prices down. That’s been the trend for the last 50 years. Corn demand resulted in a slight upward food price trend in 2004 and 2005, but the long-term trend has been down for real food prices.
“We spend only 10 percent of our incomes for food and we are buying a huge share of food away from home and still prices come down. But is that trend at an end?”
Maybe so. With estimated world population at 9 billion by 2050, demand for food will increase significantly. “Also, incomes will be rising. Now, much of the world’s population lives on $1 a day. As that increases, they will want to improve the quality of their diets, including animal protein and fruits and vegetables.”
Demand for energy crops also will compete for acreage. Land set aside for ethanol production and windmill farms competes for acreage with traditional food and feedgrain crops. Environmental services such as CRP and wildlife habitat will be in the mix, too. Conklin said many landowners have developed acreage into profit centers with hunting leases and other recreational activities.
“Most of that acreage will not come back into production agriculture. Water may become a more serious issue than land.
“If we have the resources to meet demand, we could see a continued decrease in the price of food. If not, we could see an increase in food costs.”
The farm bill has become a food bill with 75 percent of all funds dedicated to food stamps or child nutrition. Within the agriculture community, competition for available dollars in farm bill programs also promises to divide a diminishing funding pie into smaller and smaller slices.
Conklin said recent election results also add uncertainty to future farm bill offerings. A significant number of agriculture committee members lost their seats in the election and at least some of the freshman class will be more interested in urban issues than rural, Conklin said. Emphasis will be on reducing the deficit and the size of government. That will have an effect on the farm bill debate.
Conklin said Oklahoma Congressman Frank Lucas, the likely chairman of the house Agriculture Committee, has indicated he prefers to wait until 2012 to begin farm bill discussions.
Cap and trade legislation, Conklin said, is likely dead, but the EPA “will play a larger role in ag policy.” The Department of Energy may also be a bigger player. Farms and ranches, which have been considered “non-point source” pollution sites, may become point-source sites.
He’s encouraged that “a lot of groups are beginning to focus on finding market-based solutions to environmental problems. Some are looking for a more flexible approach to regulations. That’s a positive approach.”
Conklin said agriculture, food and rural policy likely will continue to see a sluggish overall economy and high unemployment, budget pressures, high commodity prices and rising food costs and a “broader range of stakeholders for the farm bill.”