Global Economy Enters ‘Uncharted’ Territory

Global Economy Enters ‘Uncharted’ Territory

The state of the global economy represents something producers haven’t seen in the past.

“To have the U.S. on fairly solid ground, at least compared to where we’ve been, and have most of the world economies go into recession is a little uncharted ground,” explains Mark Jensen, senior vice president and chief risk officer, Farm Credit Services of America, during the 2015 Top Producer Seminar.

(Click here to view a copy of Jensen’s complete presentation.)

The U.S. is on the tail end of a 30-year interest cycle, and Jensen says his company is encouraging people to lock in rates.

In Europe, the Swiss have “basically disconnected themselves” from the euro, and it is likely Europe will implement some form of quantitative easing, Jensen notes. Meanwhile in China, growth rates have slowed to between 7% and 7.5%, though it’s possible growth is as much as 1 point lower.

Farmland and Real Estate. Farmland values are one point of focus at Farm Credit Services. Investor purchases have given way to farmer purchases of land in the past four to five years. It’s unclear whether investors will reenter the market if land values fall in the coming years, Jensen says.

Net farm income is off between 20% and 30% from recent highs, which has implications for rural America. Fewer states are considered farming dependent than in the past, yet key Corn Belt states are seeing a slowdown. In Nebraska, metro job growth is strong, but in rural areas it is off a little bit.

“Clearly you can anticipate there will be an impact” in rural areas on job growth, particularly in the states surrounding Nebraska, Jensen notes.

Ubiquitous Cycles. The rise and fall of the U.S. housing market is reflective of the fact that every industry experiences cycles, Jensen points out. Cycles are marked by a series of emotions, euphoria on the way up followed by panic and desperation on the way down.

Ag real estate is a bit different. The housing bubble was spurred by credit standards “falling out of bed’ and subprime mortgages. In contrast, farmlands financed with cash put producers in a better position than land financed with debt. 

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Spell Check

Western, NE
2/8/2015 09:33 AM

  It's a good article. I've been farming since 1973. I've heard the same line on population growth since then. One of my retired farm neighbors heard that same line back in the early 60's. We're on the precipice of an agricultural depression. Interest rates are low and have no place to go but up. But when? Inputs haven't fallen with the crop prices like they had in the recent past. We have suppliers telling us that they have financial obligations to meet and can't lower their prices. Fuel is cheap today, but six months from now is anyone's guess. My area hasn't seen the decline in red diesel like others may have. Real estate taxes are confiscatory. The 2014 Farm Bill is a joke. Reference prices are too low to do any producer any good. Crop insurance is being adjusted to put more dollars towards food stamps. Even if the producer has a good balance sheet this year, what's it looking like in two to three years down the road if prices stay as they are?


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