Tom Vilsack didn’t look the part of a casino greeter last week.
But I couldn’t help but make the analogy after listening to the U.S. Agriculture Secretary’s address that kicked off the USDA’s annual Outlook Forum Feb. 24-25.
The “safest bet in America” is on the country’s farmers, ranchers and growers, Vilsack told a packed ballroom at the Crystal Gateway Marriott Hotel just outside Washington, D.C. “These are extraordinarily hard-working people who have done an incredible job.”
Vilsack used the term “safest bet” five times during his 35-minute speech, according to a transcript posted on the USDA’s Website. Whether he intended any subtle references to commodity market speculation, I’m not sure. Whatever the case, it’s been clear for many months that once again, agriculture is a hot news story and fashionable investment vehicle.
Whether we’re talking about record-large bullish speculator bets in corn and cattle futures, or Deere & Co.’s soaring stock price, or booming cropland values, everybody, it seems, wants a piece of the farm.
Agriculture’s heightened sex appeal was underscored at the forum, which drew more than 2,050, an all-time high since the USDA started the event in 1923. The crowd included the usual array of consultants, bureaucrats, Wall Street analysts, journalists, and even a few farmers. Most were on hand during an address by Bill Clinton, the first appearance by a current or former U.S. President at the forum.
“There’s going to be plenty for American farmers to do” to feed a growing world population, Clinton said. He also raised a caution flag over the ethanol industry’s rapid expansion, saying that while the U.S. needs to be more energy independent, “we don’t want to do it at the expense of food riots.”
Vilsack, who spoke before Clinton, shot down any notion the government will scale back its biofuels ambitions, saying “there’s no reason for us to take our foot off the gas” when it comes to investments in renewable energy.
This takes us back to commodity prices. I’ll save the food-vs.-fuel debate for another day, and instead focus on the broader commodity story of which the difference of opinion between Clinton and Vilsack is but one of many subplots.
The world is demanding more and more of what U.S. farmers produce, and money is flowing into the sector accordingly. Corn futures have nearly doubled since the middle of last year, while cattle prices recently hit record highs. Net farm income is projected to jump 20 percent in 2011, to $94.7 billion, the second-highest inflation-adjusted total in the past 35 years, the USDA says.
But this isn’t entirely a feel-good story. The nation’s beef, dairy and pork producers are being increasingly squeezed by soaring feed costs, and their reluctance to expand herds is contributing to escalating meat prices. Food inflation is accelerating, and oil’s recent push above $100 a barrel raises questions over the sustainability of the country’s fragile economic recovery.
For livestock people, another potentially troubling question: Will shoppers be loading up shopping carts with $7-a-pound steaks and $4 bacon after they’ve paid $4 a gallon to fill up their automobiles? Or will they opt instead for the $2-a-pound chicken breast?
This is not a “speculation is bad” argument. Every credible economic analysis I’m aware of strongly indicates that commodity prices, over time, follow basic supply and demand fundamentals.
Rather, this is more about the law of gravity. At the Chicago Board of Trade, where I spend many workdays, a long-standing axiom is “the best cure for high prices is high prices.”
The most-recent broad commodity price surge prior to this year's - in mid-2008, when oil neared $150 and corn hit a record $7.65 a bushel - didn’t stick. Prices plunged during the second half of 2008, and as we learned later, the U.S. was already in a severe recession that didn’t end until mid-2009. Net U.S. farm income sank 28 percent in 2009, with beef, dairy and pork producers suffering deep losses.
I’ve long thought that being involved with farming is a lot like rooting for the Chicago Cubs, and I happen to fall into both categories. There are occasionally good times and moments of glory. But you’re always looking over your shoulder for the next disaster.
Vilsack is right about the hard-working qualities of America’s agricultural producers. But he might have included one other small point: As any smart gambler knows, enjoy your winnings but be prepared for the days when the chips don’t fall your way.
Bruce Blythe covers the commodity markets and farm economy for Vance Publishing from the CME Group trading floor in Chicago.