While the Rural Mainstreet Index is growth positive for the fourth month in a row, indicating things are improving in farm country, Dr. Ernie Goss from Creighton University has his eyes on two issues: trade and interest rates.
According to Goss, exports are the reason for the improving farm economy despite “trade saber rattling.” For that reason trade is one of the warning signs he’s concerned about going forward.
“That’s one of the real warning signals that I'm very concerned about going forward is what about trade? What about trade to China? What about trade to Japan?” he asked AgriTalk host Chip Flory on Thursday adding that he’s particularly concerned about Asia but also concerned about the North American Free Trade Agreement (NAFTA).
“NAFTA is very important and now we have a NAFTA deal is hasn't been sealed and may not be sealed until the next session of congress,” he said.
Goss said Trump pulling back Chinese tariffs was a “good message.”
“We economists believe that two parties can engage in trade and both win,” he said. “It's not a loser and there's a winner, just sometimes one's a bigger winner than the other, both winners.”
The other red flag he’s watching is the interest rate. Just this week, the Federal Reserve indicated an interest rate increase could happen at their June meeting, according to Pro Farmer’s Jim Wiesemeyer. Inflation continues to rise, signaling to Goss that interest rates will increase as well.
“By the end of the year most economists, and that includes me, are expecting rates to be up as much as three-quarters to 1%,” he said.
Fortunately, farm loan delinquencies are not expected to increase at a rapid rate, he said.
“But if we saw a bad, bad 2018 they would rise, but right now bankers on average expect about a 3% rise for delinquencies or defaults for 2018 over 2017.”
He explained that’s not bad considering commodity prices.
Listen to the full interview below.