Academic journal article Chicago Fed Letter

Agricultural Trends and Paths toward the Future-A Conference Summary

Academic journal article Chicago Fed Letter

Agricultural Trends and Paths toward the Future-A Conference Summary

Article excerpt

On December 1, 2009, the Chicago Fed held a conference that examined issues shaping the future of Midwest agriculture, with a focus on public policy implications. This conference gathered experts from academia, industry, and policy institutions to discuss trends and possibilities for agriculture in the region and across the nation.

The goals of this conference were to explore factors that will impact the future direction of Midwest agriculture, particularly its composition and structure; examine the implications of the changing agricultural landscape for rural communities, as well as industry; and discuss the role that policies will play in guiding agriculture. A common theme was the opportunities for growth in Midwest agriculture while facing traditional and new challenges requiring innovative solutions and some painful transitions.

Daniel G. Sullivan, Federal Reserve Bank of Chicago, kicked off the conference, emphasizing agriculture's key role in the future of the Seventh Federal Reserve District.1 Sullivan noted that agriculture has faced volatile conditions in recent years: Corn and soybean prices reached nominal record levels and then dropped dramatically; positive livestock and dairy margins evaporated quickly; and consumer food prices rose rapidly before falling below the level of a year ago by the fall of 2009. Accounting for these factors, the U.S. Department of Agriculture (USDA) had forecasted net farm income to decline 35% in 2009 from 2008. Moreover, in 2009, District farmland values were down from a year ago, after a run of years with large increases. A deterioration in District credit conditions reflected the downturn in agricultural prospects, compounded by the recession, according to Chicago Fed surveys of agricultural bankers. Against this backdrop, participants analyzed the future of midwestern agriculture and the regional economy.

Trends in Midwest agriculture

Mary Ahearn, USDA, highlighted important trends affecting the over 2 million farms in the U.S. Increasingly, the typical farm family has had a relatively stronger financial position than other families in the U.S. However, most farm households have depended less on income from the farm than from other sources. Partly this has stemmed from the increasing number of smaller farms over the past several decades. The largest farms (gross value of production over $250,000) made up only 10% of total farms in 2009, yet these farms generated almost 90% of the total value of production. Ownership of farmland has shifted away from those who operate farms; also, farm operators have leased a higher proportion of their farmland. The standard measures of farm sector and household financial performance improved over the past few decades, but they had been forecasted to decline from 2008 to 2009. In particular, farm household income from farming and from other sources had been expected to decrease in 2009. Moreover, fewer farm families would have had health insurance coverage under USDA projections. Also, farmland values and the net worth of farms had been headed lower. Even so, the farm debt-to-asset ratio on average would have remained relatively low compared with historical standards. Ahearn calculated that the Seventh District had both the most farms of any Federal Reserve District and the highest value of production (about 19%) in 2008. At the same time, the Seventh District had the highest returns on assets and the largest debt-to-asset ratio.

Christopher A. Wolf, Michigan State University, analyzed the prospects for die dairy industry in the Upper Midwest. Wolf examined recent swings in dairy product prices, highlighting the declining real farm price for milk since the 1970s. Milk prices collapsed, since the global economic crisis decreased demand in foreign markets and reduced U.S. dairy exports. In the past few years, milk prices have fallen so low that operations have not covered feed costs, which had increased substantially. This situation led to contractionary pressures on dairy farms, some of which folded. …

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