LOUISVILLE, Ky. — Farmers were looking, perhaps dreaming a little, but many were also spending. Farm equipment and allied industry exhibitors were smiling, perhaps holding their breath a little, but many were also exhaling.
The National Farm Machinery Show, Feb. 11-14, in Louisville, Ky., was a solid litmus test of agriculture’s state of mind. Would visitors be doom and gloom or still positive? How hard is the spinning nonfarm economy hitting the farm?
The USDA expects 2009 net farm income to drop 20 percent from 2008. Grain receipts may be down as much as 22 percent, with wheat income taking the hardest hit, down 26 percent. Livestock receipts are forecasted to be down 8 percent, led by the substantial drop in milk prices.
The good news is that production expenses are beginning to drop and economists say fuel and oil prices will be down 33 percent this year.
Like all farm leaders, McCormick International CEO Rodney Miller is closely watching the general economy, but he says the fundamentals are still strong in the farm economy. And, if interest in his company’s lineup in Louisville was any indication, farmers are trying to stay upbeat, too.
“I don’t want to sound too optimistic, but yesterday was the best day I’ve ever had at a show,” Miller said Feb. 12 at the National Farm Machinery Show.
The McCormick booth was “wall to wall people,” he added.
That’s not to say he’s not realistic. McCormick, which just posted its first profitable year in the U.S. since its creation in 2001 with growth of 30 percent, is forecasting fewer sales in 2009 and has cut back capacity.
“We’re just trying to be cautious and not overbuild,” Miller said.
At the end of 2008, “everybody got scared,” he added. “Now everybody’s realizing life goes on and they’re saying ‘we need to make the purchases we need to make.'”
It’s no surprise that farmers in general are taking a more conservative approach to planned purchases these days.
Tom Schlenker, executive vice president of Farm Credit Services of Mid-America, said farmers haven’t stopped spending and haven’t stopped borrowing — “a guy’s still looking” — but producers are being more conservative and doing more pencil pushing.
He said the livestock and dairy industries in particular are facing a challenge, but “I don’t worry about the stability of our portfolio.”
“We’ll be under economic stress and duress, too,” Boehlje said during a workshop at the farm show coordinated by Farm Credit Services.
Ag exports, which were strong in 2008 because of a weak dollar, are likely to be down 10 percent over the next year. And all export eyes are on China, he added.
“We’re all watching what happens in China,” Boehlje said. If China’s growth rate is down 4 or 5 percent, the U.S. recession could be “deeper and longer.”
Not a repeat of 1980s. The economist said farmers will likely see a softening of their asset values, particularly farmland, which could drop 10 percent. But, he emphasized, the current farm conditions are “nothing like the 1980s,” when the farm economy had major upheavals and equity erosion.
“What we had in the ’80s is exactly what the housing market is going through now,” Boehlje said. “We’ve ‘been there, done that’ and learned from that.”
He encouraged producers to target new opportunities. Those with solid debt-equity ratios might find more rental properties available or more farmland on the market.
Indiana master farmer David Minich of Logansport echoed Boehlje’s words with the Boy Scout motto: “Be prepared.”
Three years ago, he built a new grain storage complex. “I didn’t need it then, but I sure used it last year,” said Minich, who also addressed producers at the Farm Credit workshop.
“It’s going to take all of your free time on the management part of agriculture to make it this time.”
Purdue ag economist calls conditions ‘surreal’
LOUISVILLE, Ky. — There was no sugarcoating the delivery.
Purdue University ag economist Larry DeBoer came flat out and said it: “We’re looking at a really big recession.”
DeBoer participated in a webinar Feb. 13 coordinated at the National Farm Machinery Show in Louisville by Purdue and Farm Credit Services. His job was to explain how the U.S. economy landed in this mess.
“The economic outlook is about as depressing as it’s been in my lifetime, or at least my lifetime as an economist,” he said. “It’s surreal.”
Then, he took the group of farmers through a series of 10 slides that illustrated the current situation — charts with GDP and home prices and building permits and investment spending lines zooming downward and charts with unemployment headed in the other direction.
And all of it was triggered by the housing market and real estate investors “irrational exuberance.”
His prediction came in vague economic terms. “The economy will recover within the next couple of years.”
“We cannot recover unless consumers spend more this quarter than they did last quarter,” DeBoer said. “And consumers aren’t spending and they’re unlikely to spend.”
The stimulus package that was on the U.S. Senate floor even as DeBoer spoke is “probably too small to do the trick, but probably as big as we’re willing to try.”
The only good news DeBoer could muster was the old phrase: “This too shall pass.”
But even then, the economist had to add there will be “considerable economic pain” before it ends.