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Minnesota Farm Markets and Urban Employment Come Together; No Economic Recovery

July 09, 2009 By Lee Egerstrom, Economic Development Fellow
News reports from farm country offer little hope that the Minnesota economy has bottomed out and may be poised for a rebound. Not much is happening, and that is the problem.

Consider these recent developments:
Minnesota Agriculture Commissioner Gene Hugoson joined his Iowa counterpart in calling on the U.S. Department of Agriculture to buy excess pork products for national feeding programs. This would be a stimulus program to strengthen the market for meatpackers and pork producers - both of whom are major employers and economic players in the rural Minnesota economy.

The Minnesota Farmers Union has been holding "no bull" sessions around the state for the Minnesota dairy industry. Dairy is currently in the tank along with other livestock sectors, and livestock cycles run long even when they aren't being hammered by consumption-reduced recessions.

And despite relatively tight national and global supplies, diminished trade prospects have grain prices falling below costs of production on many Minnesota's farms. Corn prices have lost more than a dollar a bushel from earlier in the year with nearby futures prices at about $3.25 per bushel at the close of trading on Tuesday. Soybean prices are down more than $3 a bushel since winter, closing at around $10.50 per bushel on Tuesday.

Market signals are not much better for grain farmers than they are for livestock producers. But like so much of the data that comes with monitoring the recession, the actual impact of current agricultural market trends can be misleading.

Grain farmers use sophisticated marketing tools, such as forward contracts and futures, to lock in prices well before the harvest. We won't know until next spring what the falling commodity prices actually mean to Minnesota's important farm income component of the state's economy.

The same applies to livestock production, but there has been less opportunity for farmers to lock in higher prices for this year's meat animal production. USDA market data show the farm value for beef animals has fallen by about $2 a pound since July a year ago.

There is even less opportunity for dairy farmers to protect themselves from falling prices.

The Minnesota office of the National Agricultural Statistics Service announced June 18 that Minnesota and Wisconsin dairy farmers have been rebuilding herds and increasing milk production even though cow numbers and production have remained steady across the nation. Minnesota milk production was up 2.9 percent and Wisconsin's up 1.9 percent on the year through May while U.S. total milk production was "virtually unchanged," NASS reported.

The reality is we are not awash in milk or meat, or corn or soybeans or wheat.

Commodity markets reflect anticipated impacts of supply and demand forces, not just current actual production and consumption volume. Therefore, the markets are telling us that traders are scared that rising unemployment will reduce future demand at home while the spreading global recession will weaken future demand for exports.

Public Policy Implications
Given the downward psychological pressures on agriculture, and by extension, the rural Minnesota economy, the single most important market-sensitive data coming forward this summer will be employment numbers.

Economists now warn that little impact of federal stimulus efforts will show up in the national economy before this fall - at the earliest. That's because of the lag time it takes to put federal dollars into play; better than 90 percent of this past winter's approximately $800 billion in stimulus programs is still in the pipeline and not yet in the economy.

Furthermore, efforts by the federal government to boost employment is being negated by state and local budget cutting and "unallotment" actions that put more people out on the street.

A potentially disastrous psychological signal to markets is a 10 percent unemployment rate, which will count only those people out of work who still qualify for unemployment benefits. We are quickly approaching that mark, and Minnesota state and local governments are doing their part to push us over the top.

The University of Minnesota system is losing more than 1,200 faculty and staff positions to budget cuts. This will harm quality of education at the university campuses, warned Regent Steve Hunter in a July 3 article in the St. Paul Union Advocate newspaper.

Melinda Voss, spokesperson for the Minnesota State Colleges and Universities system, said MnSCU doesn't have a comparable working number. The system's various campus leaders will make local staffing decisions based on budget revenue.

Such job losses are part of an estimated 3,300 to 4,700 losses from new budget cuts projected a week ago by State Economist Tom Stinson in testimony before the Legislative Advisory Commission. That forecast, however, didn't include multiplier effect impacts on private service vendors and from lost productivity.

What should be clear to state and local officials and policymakers is that we, as a state, can do little to turn the enormous U.S. economy around. But we can make it worse, and we are.

For agriculture, it should also be clear that the old recession-resistant adage that "people gotta eat" doesn't make rural Minnesota immune to the problems of the greater economy. Market psychology trumps hunger. We can't eat our way out of this mess.

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