Are we repeating the farm economy of the 1980s? With a potentially deadly economic cocktail of surging commodity prices, increasing oil prices, a low and declining value of dollar, high ag exports, inflationary pressures, negative real interest rates, and increasing capital gains, one may sense some déjà vu.

For the most part, most farmers suffered in the 1980s; tens of thousands lost their farms, some lost their lives, and many lost their families. A large percentage of those who survived are still farming today, with many of them well past their golden years and not looking forward to a re-run of hard times. But what are the implications of the current recession on the farm economy? That was addressed by Michael Swanson, agricultural economist for Wells Fargo, the largest agricultural lender in the United States.

Swanson pointed to the relationship between oil, ethanol and corn as an initial example, saying that energy costs had raised input costs by 30 percent, but that corn values benefited from the ethanol market being pulled up by oil prices. That had increased farm profits and contributed to higher land values. But at the same time, the recession has reduced vehicle miles driven, pushing down petroleum demand and reducing ethanol output. But Swanson says turning off an ethanol plant is much easier than turning off a feedlot, if the commodity is not needed. Livestock cycles cannot be turned on and off when needed and costs will continue even if the demand is absent. Currently, ethanol prices have floated between the breakeven point for high cost and low cost refining plants. The Wells Fargo economist believes fuel is a wildcard for the row crop industry, since the carbon tax being debated in Congress could inflict collateral damage on crop production. He says if the government hurts the gasoline market, that hurts the ethanol market, and that in turn hurts the corn market.

Swanson says the global economy will help pull up the US agricultural sector because of the strong global per capita real gross domestic product. That points to a “huge future growth” potential for the U.S. livestock industry, according to Swanson. But pork producers should not expect a quick recovery, since futures prices for the next 12 months are within the price range of the last six years for the nearby CME lean hog contract.

Swanson was addressing Illinois farmers on July 8, along with Steve Kruse, director of finance and accounting for John Deere, who said the Wall Street meltdown had a substantial impact on John Deere Credit. He said the credit market dried up overnight, and the subsidiary had trouble borrowing money to be able to loan to its customers. Since then John Deere has “deleveraged” or liquidated its inventory to raise money. But with Deere and Company being a major consumer of steel, it is suffering from OPEC-like consolidations within the global steel industry and its artificial pricing.

Also impacted by the credit market was the Farm Credit system, which sells its bonds to raise money for lending to farmers. Chairman Lee Strom of the Farm Credit Administration that regulates the various Farm Credit banks said until last year 70 percent of its investors had been foreign central banks, but the global recession dried up the flow of money. And he said the efforts of the US government to resolve the home mortgage crisis is having unintended consequences on the Farm Credit system. He said Congress so far has been willing to allow Farm Credit to regulate it self and remain under control of the House and Senate Agriculture Committees, instead of the Congressional banking and financial regulation committees. Strom said his frequent mee tings with Congressional, administration, and Federal Reserve officials result in questions about the health of the farm economy. He says the headlines about the ethanol industry, the dairy and poultry industries, and other challenges of agriculture are getting peoples’ attention who want to know if we are heading into a 1980s style recession.

Strom says the federal stimulus program has yet to work, since only 10 percent of the money has been dispensed, at a time when some consideration is being given to a second round of programs. He is anticipating many more home foreclosures when local banks raise interest rates on adjustable rate mortgages, but he does not think the administration will allow major problems to occur as long as unemployment remains at a high level. He said that has impacted much of rural America because many farmers depend on part time jobs that have evaporated, but he hoped the federal stimulus money in USDA’s Rural Development budget would be a positive force.


The U.S. economic recovery is a work in progress and agriculture is sharing many of the positive and negative aspects of the recession. The recovery of the global economy will help demand for many U.S. commodity exports, but the administrations climate change legislation may create hardship for the oil industry, and that hurts both ethanol refiners and the price of corn. Agriculture credit is available, but companies that supply credit are having difficulty getting money to loan to farmers.