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It’s the Economy…
by Rod Johnson

By the time you read this, the fall campaign season will be in full force. Politicians will be vying and fighting for city, state and national offices. Proclamations will be made and challenged. Statistics will be referenced and scrutinized by various media channels. And every candidate will be clamoring to be in the spotlight. After all, as we noted in the last edition, “All publicity is good publicity!” Right?

Although issues relating to the war in Iraq, the rising cost of energy and the increasing unemployment rate will remain front-page news; the real issue on everyone’s mind will likely be the economy. So we can be assured, talk about the state of the economy will be on center stage. Of course, just because politicians proclaim they have the answer to turning this economy around doesn't mean they will say anything worthwhile. Yes, they'll speak of economic stimulus, curtailing inflation and fiscal responsibility. They'll talk a about a new and dynamic future. They’ll proclaim they possess infinite wisdom, yet truly have little.

From where I sit, this economic downturn will not be easy, nor will it be short. And the reason for this is:

  1. Home Equity: Personal wealth historically has been tied to home ownership. With housing prices dropping now for over a year, wealth (perceived and real) is being impacted. For many, the golden goose known as “Home Equity” no longer exists.
  2. Inflation: Inflation is a big tiger, and one that’s not easily tamed. As inflation tied to energy, the weak dollar and rising food costs increases; purchasing patterns my the American consumer will likely change.
  3. Personal Debt: Now more than ever, people are increasingly being tied to their disposable incomes. The days of leveraging disposable spending by increasing their debt load is quickly coming to an end.

It’s no surprise that “It’s the Economy Stupid!” is once again an integral component to the political landscape. But once we get past the politics of the economy, there are numerous issues facing agriculture head on. For instance:

Biofuels – Boom or Bust? Increasing world demand coupled with poor growing conditions in numerous sectors of the grainbelt have pushed grain prices to new records this summer. The impact is being felt by the biofuels industry as existing plants may be shut down, new plants delayed from coming on line, and plans for new plants to be built postponed. The full impact of high grain prices has yet to be felt by most of these facilities, however when the fall harvest arrives, the economic viability of many facilities could be challenged. Yes, there will be winners and losers.

The Organic Industry: Over the past decade, the production of organically grown produce, to meat, milk and eggs has grown dramatically. Initially, organic was for the purists, however today it has moved into the mainstream. In fact, just about every food distribution channel, including Wal-Mart, has created space for organic goods. However, as disposable incomes decline, will consumers be willing and able to afford the price differential? Or will they simply be forced to trade down based on their family’s economics?

Production Costs: Although grain producers are receiving record prices, their cost of production is simultaneously increasing. Everything from a gallon of diesel fuel, to the cost of equipment, to the price of inputs is being dramatically impacted. In effect, the boom years are being mirrored by an alarming increase in the cost of production. In effect, the producer’s exposure to economic adversity has just increased. Will this risk exposure drive further consolidation or could it be the catalyst to another farm crisis?

How one executes to the present and simultaneously adapts to the future may well determine the winners and losers. The economic stability of the U.S. economy will be challenging to navigate and holds numerous unintended consequences. It’s possible that agriculture will escape untouched, but is it likely? Whether we continue to boom or hit a bust, this is the time to get back to basics by controlling costs, managing risks and exploiting your competitive advantages in the marketplace. Good luck!!!

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