[Author: Andrew E. Goodman, 05.17 | Keywords: Executive Insight]
In my column in the August 2014 issue of The Retailer, I cited a chart published by the Federal Reserve of Kansas City titled, “Gross Farm Income and Net Returns to Farm Operators” covering 1910 to 2010. The chart showed four major peaks in gross farm income during that 100-year period, all coinciding with periods of war:
- World War I (around 1915)
- World War II (around 1944)
- Vietnam War (around 1974)
- Iraq and Afghanistan Wars (around 2005)
The valleys of gross farm income occurred between these peaks.
A chart from the U.S. Department of Ag (USDA) on the subject of National Corn Statistics shows that corn prices and profitability for farmers increased from 2006 through 2013. The primary reason for this increase was fortunately not due to war, but the adoption of the federal Renewable Fuels Standard, which was enacted in 2006. When this standard was cut back in 2014, corn prices and profitability began to decline substantially.
Questions we should consider today are:
- What affect will government policy have on commodity pricing?
- How will it affect the normal cycle?
- What affect will it have on equipment sales?
Specifically, we should focus on what is happening with the federal department of agriculture:
- What will happen to the Renewable Fuels Standard?
- How about international trade agreements, such as the Trans Pacific Trade Partnership and the North American Free Trade Agreement?
- How will these decisions impact relationships with our longstanding trade partners?
We hope that Sonny Perdue, the newly appointed Secretary of Agriculture, will understand the RFS and trade issues, and will aggressively support the agricultural economy essential in his role.
China remains one of our largest buyers of North American grain, making our relationship with China critically important. The Trans Pacific Partnership includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These countries also account for an enormous amount of United States grain exports. The North American Free Trade Agreement involves two of our largest trading partners, Mexico and Canada. Mexico has indicated it will buy grain elsewhere due to recent U.S. government policies, confirming the fact that decisions on how to proceed with these trade deals will certainly affect agricultural prices and profitability going forward.
The greatest growth in the history of world population has occurred over the last 100 years. All indications are that population growth will continue, meaning more mouths to feed. North America has the greatest ability to feed this increasing world population, with agricultural commodities our nation’s leading export. How our leaders handle foreign policy will substantially affect agricultural exports, our domestic economy and the world economy.
About the Author
Andy has worked in the equipment industry for 47 years; 22 of those leading I-NEDA. His extensive knowledge and experience helps Andy guide our members through dealer-manufacturer relationships, complicated mergers and acquisitions, and legislative issues. When he’s not working, Andy enjoys riding his motorcycle, fishing, model railroading and spending time with his wife and grandchildren.