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A ‘Golden Age’ for Agriculture?

May 23, 2012 By Lee Egerstrom, Economic Development Fellow

A number of "experts" and observers across the nation are declaring the current era the "golden age" of agriculture.

Let’s not rush it.

Agriculture has been one of the U.S. economy's strongest sectors, especially in Minnesota. It helped sure up the state economy through the recession. Ag was comparatively strong throughout much of the past decade, but not every year and certainly not for every sector of the food and fiber producing industry.

Much of the assumptions built into forecasts for agriculture’s future are based on America’s insatiable appetite for motor fuels and corn-based ethanol. That is currently the biggest driver in farm commodity prices, but high corn prices can negatively impact livestock and poultry farmers who still see corn as a feedstock.

Here are a couple of reasons non-farming Minnesotans should be cautious about the state’s ag economy.

First, the annual Minnesota Farm Real Estate Sales report prepared by University of Minnesota applied economist Steve Taff found the fewest land sales last year of any year since 1990. The data were for only the first nine months of 2011, but it did reveal there is no huge stampede of investment going into farmland.

This may be nothing more that families deciding to hold onto farms, either for nostalgic reasons or because there are few outside sectors of the economy that would offer better returns on money made from land sales. But the fact that land prices reported in the thin farm real estate market actually declined slightly last year also says that money isn’t rushing into a tight market and driving prices towards another bubble.

Another factor that could be in play, Taff said, is that farm families near the Twin Cities are not selling land to urban developers and then moving their farm operations to more rural areas. There are tax reasons why farm families vacate metro areas, but the state of the economy has slowed “sprawl” pressures on nearby farmland.

Two prominent Minnesotans also have some words of wisdom.

The world is hungry and weather problems are adding to food shortages in many parts of the world. The late Vice President Hubert Humphrey repeatedly argued that physical need—hunger—did not make a market. Humanity meets those needs only when governments and nongovernmental organizations intervene in markets to make food aid flow.

Along that same path, the late University of Minnesota economist G. Edward Schuh always stressed that currency values greatly impact trade volume and direction of all global commodities that are denominated in U.S. dollars. The world’s foodstuffs are traded using the dollar.

Don’t think for a moment that the problems with the euro in southern countries of the European Union aren’t a threat to U.S. farm exports going forward. Any weakening of the euro is almost certain to push the value of the dollar higher against most other currencies; central bankers and the U.S. Fed have limited ability to stabilize those pressures.

Experience tells us that a strong dollar clips farm exports and sales of lower-valued manufactured goods. There’s no reason to believe this time around would be any different.

With such uncertainty clouding the picture, the National Cooperative Business Association (NCBA), which is part of a 125 stakeholder conglomeration of agriculture, conservation, energy, rural development and other groups, is urging the U.S. Senate to quickly pass a version of the so-called “farm bill.”

The National Farmers Union has taken the lead in pushing for Senate action. A conference committee with the House will be needed for the next multi-year farm, food and rural development programs to go into effect. Existing programs from the 2008 farm bill are set to expire in September.

“This is one piece of legislation upon which all Americans depend, urban and rural,” said Roger Johnson, the NFU president in a cover letter for the groups.

When that many groups can see the need for a continuing safety net under ag producers, rural families, and city dwellers, it is premature to declare this the “golden age” for agriculture.

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