Henderson: Farm Economy Looking for 'New Normal'
Published: Friday, December 13, 2019
At an agricultural policy forum last week hosted by the Indiana Corn Marketing Council and Indiana Soybean Alliance, Purdue University experts and national corn and soybean organizations shared thoughts on a variety of factors influencing the grain economy in the new year.
Purdue University ag economist Jason Henderson spoke on agriculture's "new normal" and how farmers can get ahead in the in the new year based on trade, markets among the younger generations and adjacent industries. Henderson said the current ag economic climate is comparable to that of the 1990s.
"History never repeats itself, but it sure does rhyme, doesn't it?" Henderson said, quoting Mark Twain. "Where we're at in commodity markets, it's all going to break even, getting ready for a decade-long plateau."
According to Henderson, the past several decades of farm incomes have plateaued for the majority of each decade. In the '60s, '70s, '80s, '90s and 2000s, various factors, such as a spike in demand, weather challenges, good and bad crop years and others, have influenced farm net incomes, which then plateau for about a decade before a new influential factor surfaces. So despite the circumstances and low-profitability farmers find themselves in this decade, it's not unlike what has happened repeatedly in the past. However, one difference between now and past decades is that interest rates are lower.
So how can farms adapt to survive? As in the past, Henderson said consolidation or expanding the operation is an option. Another may be to diversify into specialty crops which are more profitable—recently, the hemp crop in the country has expanded for just that reason. He expects more farms will buy into that opportunity in the coming year. The younger Millennial generation and Generation Z, he said, are also more partial to specialty crops—fruits and vegetables—and are willing to pay for them.
Along with diversifying, Henderson said value-added enterprises tend to emerge as opportunities in this plateau situation.
"Over the next decade, I tend to think that we're not going to be exporting so much of bulk commodities, but I think we need to start thinking of why not sell high-value products and processed products?" Henderson said. "We need to be thinking a little bit differently. In some ways that is good for us because it allows our local communities to capture the value added in the processing activity."
Additionally, Henderson predicted other family members—such as spouses—of farmers will seek off-farm jobs to cover healthcare and other costs. Later at the policy forum, Purdue expert Jim Mintert went over trends in the Purdue University/CME Group Ag Economy Barometer and how farmers can promote economic growth on their operations. The Ag Barometer is a measure of producer sentiment and optimism based on a mid-monthly survey sent to 400 producers across the U.S. Comparing next year's election to the barometer reading of the 2016 election, Mintert said farmers remain cautiously optimistic.
"I think what people did was look into what the policy proposals were in the 2016 election and felt they would be beneficial to U.S. agriculture," Mintert said. "I think there was an expectation that they would see things change in a way that would be more favorable towards U.S. agriculture and that's why they became more positive. And I think in terms of the regulatory environment, there was some follow-through there. I don't think people expected to see us get into a trade battle with China. However when we asked people about that, they remained cautiously optimistic."
As recently as a month ago, producers were cautiously optimistic about farm incomes in the coming year. But regardless of how optimistic producers may be over the trade war, Mintert said producers should consider ways to promote economic growth on their operations. Expanding or diversifying may be a good way to go about that, but Mintert said producers need to look at those options strategically and consider their resources and comparative advantages, as well as what skills, entry and management requirements will need to be obtained along with those.
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