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Ag Needs More Middle Income Consumers

Ag Needs More Middle Income Consumers

Despite stock market surge, economic woes continue.

Mouths to feed and bodies to clothe drive demand for farm products. But mouths and bodies are not sufficient to create demand. Boosting demand takes buying power. Farmers need U.S. consumers to have more earnings, particularly middle income consumers who spend a good share of budgets on food.

So what's the outlook? Wall Street’s 2013 surge pushed major stock indexes above their pre great recession peaks. Add rebounding housing prices and demand gets some help from the wealth effect. Consumers, who have jobs, are likely to spend more when they feel wealthier.

Farmers need U.S. consumers to have more earnings, particularly middle income consumers who spend a good share of budgets on food. Source: USDA

While Wall Street and stock owners have largely recovered, many consumers are still struggling with stagnant labor earnings, if they have jobs.

Roger McEowen, Center for Ag Law and Taxation at Iowa State University, tracks economic trends using public data from various government agencies. The data show that from 2009 deep into 2013:

--Real median U.S. income declined 5.7%.

--The percentage of people in poverty increased 12% to 15% and the number of people in poverty rose 14% to 17%.

--The percentage of people who have dropped out of the labor force climbed 10.7%.

--The number of unemployed workers rose 52%.

--People with part-time jobs who say they want full-time jobs rose 62%.

--The number of people on food stamps climbed 45.1%.

--The amount of federal disability payments climbed 20.3%.

--The total debt of the U.S. surged 57.5%.

Incredible numbers

“Those are some incredible numbers,” notes McEowen. “They show that economic woes in the general economy continue.

“Fortunately, agriculture has been largely spared from the downturn in the economy,” he notes. “However, we should always be prepared for times that may not be as good.

“The economic data suggest that many individuals are leveraging heavily,” he adds. “Financial distress issues will be significant in the coming months and years.”

Should farmers be concerned? Yes. Corn is tracking toward a market year average price of $4.10 to $4.90. That range is well below the 2012-13 market year average of $6.89 and 2011-12’s $6.22. Farmers need a lot more yield to offset that much price reduction.

Fading corn prices heighten alarm among grain farmers over efforts to ease the renewable fuels standard. Livestock producers greet that development with glee.

Energy experts point to improved fuel efficiency as one reason gasoline consumption lags projections made when renewable fuels targets were set. Another reason is that Americans are just plain driving less. Older Americans spend less time on the road. Consumers suffering the 5.7% decline in real income have less money to spend on travel.

In November, Schrader Real Estate & Auction Co. managed a series of sales that have shown the market for farmland to be alive and well.

“In Wisconsin, Arkansas, Indiana, Michigan and Ohio we've consistently seen big crowds and intense competition for the properties we've offered during November,” says R.D. Schrader. “We've seen it on farms of all sizes, in a broad geographic area. This has resulted in very strong sale prices, with participation from farmers and investors alike.”

The picture is not quite so rosy in the “flash drought” area of the western Corn Belt.

“We’re experiencing a correction in the land market,” says Randy Hertz, Hertz Real Estate Services,. Nevada, Iowa. “Prices for higher-quality land are steady to soft, sometimes even with strong buyer interest. Lower-quality farms are weak to very weak.”

TAGS: Livestock
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