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Serving: United States

The Relationship Between the U.S. National and Agricultural Economies

TAGS: Management


The other day a lender in a Farm Credit University class asked me an interesting question. Based upon his perspective, it seems when the national economy is thriving, the ag economy is struggling with low commodity prices. Now that the national economy is struggling, it seems that the ag economy, especially grain, is thriving. Is there any correlation?

This is a very interesting question that has some historical perspective. In the 1970s, when the agricultural economy was doing well, the general economy was plagued with stagflation, that is, stagnant economic growth and high inflation, along with high unemployment.

The 1980s were just the opposite. The farm and rural sector was experiencing the farm crisis, while the general economy was in an 86-month period of expansion, and the stock and equity markets were beginning a long bull run.

The 1990s and early 2000s were years of low to modest commodity prices. In this period I called it the “2 in 10 year rule.” Two of about every 10 years grain producers hit a home run on net income, while the other eight years, they depended on farm program payments. Livestock enterprises did quite well. Contrast this to the general economy. It was a period of low unemployment and solid economic growth fueled by the technology sector and the stock market, followed by residential and commercial real estate appreciation.

Today the general economy has been experiencing high unemployment over a long duration, slow economic growth, and a housing industry that initially deflated and is now in a slow recovery, despite record low interest rates. For 260 million Americans who are mostly in suburban and urban areas, it has been a long, steep recession.

For the roughly 60 million people in agricultural and rural America, particularly those connected to grain production, oil and minerals, this has been the best of times. These sectors have had the good fortune of being linked with the rapidly growing emerging markets worldwide. They have been beneficiaries of public policy, i.e. ethanol mandates, and a very accommodative Federal Reserve, which has introduced economic stimulus resulting in a weak value of the dollar and low interest rates.

The answer to the lender’s question is yes, the agriculture economy, particularly grains, has been asynchronous to the national economy, while livestock is in roller coaster economics between boom and bust! The nursery and timber industries are synchronous with the national economy. In my speeches, I frequently comment that the grain industry is more linked to the international emerging economies than the U.S. economy. This relationship appears to have existed over the past 50 years; however, no one knows how long it will continue!


Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected]

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