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Today’s Farm Economy More Like 1970s Than 1980s

Because interest rates remain low and farm debt isn’t highly leveraged, today’s low commodity prices don’t mean the farm economy is headed toward a debt crisis like in the 1980s, a nationally recognized authority on agriculture and lending told the National Agricultural Bankers Conference in Indianapolis Monday.

“If we don’t get rampant inflation and we don’t get skyrocketing interest rates, this is just going to be a speed bump and adjustment,” said Jason Henderson, associate dean and head of Extension at Purdue University. Before taking that job, Henderson led the Omaha branch of the Kansas City Federal Reserve Bank, where the agricultural economist tracked the agricultural and rural economy.

Henderson said farmers currently are in a liquidity crisis and that those with enough collateral will be able to weather low prices. Henderson doesn’t expect farm income to rebound much through 2018 or 2019, which will be difficult for younger farmers without equity, as well as main street business in small towns as farmers reduce personal spending.

Henderson sees similarities between today’s farm economy and that of the 1970s, not the 1980s. In the late 1970s and today, prices were declining and exports were declining.

The U.S. economy already is growing and Henderson expects both baby boomer retirees and millennials to drive consumer demand.

“I’m extremely optimistic about the U.S., even after an election that brought out the worst of us,” he said. A recovering real estate market is already showing up at Purdue, which sees good job prospects for students studying landscaping and horticulture, he pointed out.

For agricultural exports, Henderson sees possibilities and challenges.

“I think the future of agriculture is not going to emerge from China. It’s going to emerge from who’s the next China. Is India going to be that opportunity?” he asked.

With an aging population, China’s working age population is projected to fall by about 100 million people by 2040, Henderson said. India, on the other hand, will see its population of working-age people rise by 200 million by 2030.

A big difference between today and the 1980s is that the Federal Reserve’s tighter monetary policy that raised interest rates came at a time of high inflation, which isn’t the case now.

Before the 1980s debt crisis, the Fed raised rates suddenly with little warning. Today, “they’re telegraphing their moves. And they understand that speed kills in the financial markets. Slow and steady wins this race,” he said.

Wage pressure from a smaller U.S. workforce could make inflation worse, especially if the Fed and other policies seek to make the U.S. economy grow at rates much above 2%, he said.

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