March 16, 2021
Mixed reports on the short-term success of U.S. agriculture cannot overshadow the dark clouds on the horizon for the entire U.S. economy as nearly half of all dollars ever printed by the U.S. Treasury were printed in the past year.
Efforts by the Federal Reserve to inject liquidity into the U.S. economy are without precedent, according to Tanner Ehmke, manager of CoBank's Knowledge Exchange. This portends the likelihood that "inflation at some point will have to take off," he said recently to a virtual meeting of rural appraisers.
Since COVID-19 became a household word about a year ago and the U.S. economy tanked, federal economic policy has been to print more money. How much, you ask? In the past 12 months, the United States has printed 41 percent of all U.S. dollars ever printed, according to Ehmke.
"It's just been bazooka after bazooka of cash shot at the U.S. economy," he said.
The latest heavy round of cash came in a $1.9 trillion stimulus package passed by Congress.
Meanwhile, interest rates remain low. From the Federal Reserve rate effectively at zero, to mortgage rates and the rates farmers pay for operating and other loans, Ehmke says this is bolstering an economy that one day will have to pay for all this monetary exuberance.
As the U.S. Dollar weakens compared to foreign currency, this could help agricultural exports compete in the world marketplace if the shipping issues can be cleared up and U.S. goods are allowed free access to foreign markets.
"U.S. agricultural exports are largely expected to continue at a faster pace in 2021 with help from the weakness in the U.S. dollar," Ehmke said.
As the Fed continues policies to stave off inflation, prices are on the rise. Everything from crude oil to metals and some agricultural commodities are up. Corn is trading higher as China seeks to rebuild its hog herd and needs to buy U.S. grain. Cotton too has seen worse days as prices there flirted with $1 per pound. The hike in cotton prices may not last for long; nevertheless, 90-cent cotton has been much more positive than the 50-cent cotton growers recently suffered through.
The price recoveries in agricultural commodities can be credited at least in part by the lower ending stocks for corn, wheat, cotton, and soybeans, he said.
Ehmke says the world cotton price could stay up for a while as economists see a possible resurgence in the global economy and a desire by consumers to spend more amidst USDA predictions of slightly fewer acres of U.S. cotton this year. Though he did not mention this, recent projections of a tight water year in California due to drought may shrink that state's cotton acreage significantly.
Dairy saw some of the most extreme volatility that it perhaps has ever seen. Butter and cheese rose to record levels in 2020, but those record highs did not translate well for some producers. While producers selling to cheese plants profited well, those selling to butter/powder plants did not as butter stocks continued to rise significantly. Consumers have benefited from this in some cases as butter sales at the grocery store continued.
The fundamental factors in dairy volatility will weigh heavily on the markets for some time, Ehmke predicts, particularly as the spring flush pushes more milk into the marketplace. Will this lead to more milk dumping, like was seen last year? Ehmke cannot discount that.
The continued U.S. policy to print money is already having an impact on inflation, he said.
"Inflation at some point will have to take off," Ehmke said in his presentation to Arizona rural appraisers. "Some of you may be saying it already has – just look at the stock market, housing market and farmland values."
Ehmke cited Congressional Budget Office figures that showed deficit spending surpassing $1 trillion in 2009 before receding to half that in 2015. Current U.S. deficit spending is now over $3.7 trillion with federal debt now at 101% of U.S. gross domestic product.
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