|
Although the farm economy will sometimes operate separately from the rest of the U.S. economy, farmers cannot help but feel the
impact of higher energy prices, lower global demand and dropping interest rates. Malanga reminded attendees that the household sector is 70 percent of the economy, “And for the first time, it was no longer
fashionable to take on debt.” The household sector realized it had too much debt, and not enough savings, and spending took a sharp drop.
This recession is the first one since WWII that was triggered by a banking crisis, and not by policy. Past recessions have been
triggered by policy changes from Congress, or the Federal Reserve Bank, but this recession was caused by a crisis in the banking sector. “Recessions triggered by banking crises take longer to recover than policy
induced recessions,” said Malanga. “Don’t confuse economic recovery from economic recovery.” In other words, do not expect a quick recovery, but a long recovery with many ups and downs.
Malanga predicts we will see a top in equities and commodities during the first quarter of 2010, when we near the one year
anniversary of March 2009, when the equity markets made a bottom. “Many of the stimulus actions implemented in 2009 will expire in the first quarter of 2010, such as the home buyer credit,” says Malanga. “We have
nothing to look forward to but tax increases, probably in estate, capital gains, and the top tax bracket.” He predicts a move from economic stimulus to economic restraint, and a pull back in equities and
commodities. The good news is that 2010 is an election year, and incumbent politicians won’t be comfortable campaigning with ten percent unemployment rates in their districts. With pressure from constituents,
politicians may face pressure to renew expiring stimulus programs if the economy begins to stutter.
One bright spot in the current economy is the corporate balance sheet. Corporate cash is the highest on record, and the debt load is
the lowest in twenty years. Malanga said the key question is “Can they carry the ball as the government steps aside?” As the stimulus programs expire, will the business sector begin to spend their cash? Malanga has
his doubts, and believes businesses will continue to operate cautiously in this economy.
For farmers, Malanga stressed locking in interest rates near the end of 2010 or beginning of 2011. “I don’t think we will see long
term interest rates this low ever again in our lifetime.” He sees one more year of low interest rates, but does advise farmers lock in their interest rates on long term loans in late 2010 or early 2011.
The federal deficit continues to be a concern, and “Trillion dollar deficits will become the norm, and not the exception,” said
Malanga. “Either spending has to be cut back, or taxes increased, and both harm economic recovery.” Looking ahead, in 2017 or 2018, the Social Security and Medicare trust fund goes into deficit, and the picture does
not look much brighter.
For agricultural producers, Malanga had one final bit of good news. He foresees faster growth in the emerging markets, than in
developed markets. Since emerging markets are critical export markets for ag products, the demand outlook for ag commodities is strong.
Low interest rates for a limited time, a slow economic recovery with hills and valleys, and an increasing federal debt are all issues
for farmers to watch over the next several years. The factors moving wheat, corn and soybean prices are more than just number of acres and yield. The global economic picture will determine the demand for ag
products, and the costs to produce those commodities.
|
