Farmers fared better than their urban counterparts during the recession of 2009 and 2010, but that doesn’t mean they are immune to risks.

“We (in agriculture) actually held up better than our urban counterparts during this ‘Great Recession,’” Jason Henderson, vice president and Omaha Branch executive with the Federal Reserve Bank of Kansas City told those attending the National Dairy Producers Conference last week. “A lot of that was driven by the fact that commodity markets were generally high,” he said. But he did go on to acknowledge that it’s been tough for those in the dairy sector.  

“We are in a recovery, yet how many feel like it is a recovery?” he asked the dairy audience.

Despite progress in most ag sectors, and recovery in the overall U.S. economy, headwinds remain, Henderson said.

He went on to outline potential risk areas for agriculture:

  • Often, when prices go up, farmers produce more, which then leads to lower prices. For instance, some see corn prices coming off their current highs. The U.S. Department of Agriculture projects that corn prices will be $4.10 per bushel by the 2013/14 marketing year. Because of this tendency to overproduce in times of high prices, “the best cure for high prices is high prices,” Henderson said.
  • Soaring global food and energy prices. When these go up, consumers scale back on other items.
  • China is trying to slow its rate of inflation by raising interest rates. That, in turn, could slow the Chinese economy and shrink that country’s demand for agricultural imports.  
  • The prospect of higher interest rates in the U.S. could affect farmland values. Often, farmland values fall in times of high inflation, like they did in the early 1980s.  
  • The level of debt in the Farm Credit System has grown. At the end of 2010, farm loan delinquencies (as a percentage of outstanding loans) had risen to their highest levels since the 1980s, he said. “I think there is more debt out there than people let on,” he added.
  • There’s a question whether middle-aged people who left the rural America when they were younger will ever come back.

Agriculture continues to face volatile markets, Henderson said. Much of this has to do with greater involvement with world markets. For instance, U.S. agricultural commodity prices are closely tracking with world energy prices.

The value of the U.S. dollar has generally declined since 2001, he pointed out. This has helped exports, and exports have been one of the biggest drivers of the economy. And, particular to dairy, “What is the biggest thing over the past five years that has shaped milk prices?” he asked. Global demand.  

Currently, the U.S. economy is in recovery, he said. Much of it is due to increased consumer spending. In April 2009, retail and food services sales were just over $330 billion. This past April, sales were nearly $390 billion.

“I think consumers are back,” Henderson said, although the housing sector remains weak. “Ultimately, economic growth is about people,” he said.

That’s the lesson of the “Great Recession” — it’s all about demand, he said. “Rising demand lifts all boats.”