Low prices, labor and weather top the list of challenges facing the ag industry in southern Minnesota, according to a poll of attendees at South Central College’s annual ag forum. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, conducted the poll of about 350 ag producers, industry professionals, bankers and students at the North Mankato college campus. Regarding the overall economy, about 20 percent said the biggest challenge was government while another 20 percent said politics.
Regarding the continued consolidation of ag businesses and land, Kashkari said it had been a trend for quite some time, and he wasn’t sure what could reverse that. While it’s been a part of public policy discussions, it can’t really be addressed by monetary policy, he said.
In response to a question, Kashkari said China is partially shut down due to the COVID-19 virus (also known as coronavirus), and it’s unlikely that, if the outbreak continues, the United States’ economy will be immune from the impact.
Although the number of farm bankruptcies in Minnesota and Wisconsin are both in the top 10 nationwide, Kashkari said the issue remains more of a regional concern because land rates haven’t fallen. “People are stepping in to buy” the land, Kashkari said, which indicates the regional economy overall is doing okay. “If we did see land prices adjusting downwards, then it could turn into a much bigger economic issue, both nationally and regionally,” he said.
Wendong Zhang, assistant professor of economics at Iowa State University, Ames, said that land prices in Iowa, regarded as an indicator for the broader Midwest, increased by 0.3 percent in 2019 after accounting for inflation, and that they were only down 13 percent from the peak in 2013.
Zhang also said that the apparent growth in the U.S. farming economy last year was mainly attributed to payments from the Margin Protection Program.
Regarding COVID-19, Zhang said likely it won’t run its course until May. Wuhan, where the virus originated, is home to 11 million people, and six times more Chinese people travel globally now than they did in 2003, when the SARS outbreak struck.
The “Chinese economy is so large now that the global market is worrying about [how] a slowing down in the Chinese economy could trigger a global slowdown,” Zhang said. Despite that, China will continue to need the United States for its ag production. The country has roughly the same land area as the United States; however, the land available for farming in China is much more limited, he said. A family of four may only farm about half an acre there. And the African swine flu has also knocked out a significant supply of China’s in-house protein source.
Before the tariffs, about 60 percent of the U.S. soybean exports went to China. From 2000 to 2017, soybean exports to China from the U.S. increased from $2 billion to more than $22 billion. If Phase One of the trade deal signed with China fulfills its promises, the U.S. should export $35 billion in ag products in 2020 and $40 billion in 2021, which would be the highest ever for bilateral trade, Zhang said. However, futures trading on soybeans has been slow as the trade deal didn’t include specifics or logistics. COVID-19 also probably impacted it.
Zhang questioned whether the trade deal will be able to match its projected trajectory past 2021. However, he does see the trade deal as overall positive as it reduced the tariff rate from 20.9 to 19.3. The big winners of the phase one deal are producers of meat products and consumer-orientated products, he said.