An Economic and Regulatory Outlook for Farmers



There are a lot of things farmers can’t control, including the economy. Todd Buchholz provides a current economic snapshot for producers.

11.09.17    |    Planning, Insights Conference 2017
There are quite a few factors that farmers can control when it comes to their operations: what seed to plant and what equipment to purchase, just to name a couple. However, there are many more factors that are simply out of a producer’s hands, including weather and, of course, the economy.

Agriculture as a whole is very responsive to economic and regulatory changes – both domestic and global. Beyond commodity prices, what does the current economy look like? Todd Buchholz, former White House director of economic policy, managing director of the Tiger hedge fund and speaker at Farm Credit Mid-America’s 2017 Insights Conference, provided an overview of the current domestic and global economy, the U.S. agriculture sector and the evolving regulatory market.

“Agriculture is very responsive to economic and regulatory changes – both domestic and global.”

The U.S. and global economic snapshot
Both the U.S. and global economy appear to be on sturdy ground. “The U.S. economy is growing at a modest pace but without igniting inflation,” says Buchholz. “That’s the good news. As long as inflation stays low, interest rates can remain low.”

In addition to a lack of inflation and low interest rates, job growth continues at a modest pace. August job growth didn’t quite meet projections, but the overall trend is still upward. After years of remaining relatively stagnant, wages are also beginning to creep higher.

Historically, September is one of the worst months of the year for the stock market. This year, however, September was surprisingly strong, and there are a handful of factors that contributed to this performance. First, corporate earnings continue to remain high. Second, low interest rates mean alternative investments like bonds are less attractive, and investors favored riskier stock options. Finally, other nations’ economies are also recovering after the 2008 recession. “Countries in the rest of the world are no longer in the intensive care ward,” says Buchholz. “They have been upgraded to stable.”

Though continued economic growth is predicted for the near future, a number of circumstances like oil prices and developing conflicts with nations could derail this forecast. However, the current economic strength of the U.S. and world economy bodes well for the agriculture sector.

The state of the agriculture sector
“Agriculture in general and the Farm Credit four-state region will be sensitive to the overall economy and the health of the job market,” says Buchholz. “Stronger economic growth sparks more sales to restaurants and more sales of premium products.”

However, there are still risks. Exports make up a large proportion of commodity sales, which means the industry is very responsive to trade agreements – and trade wars. Whether these issues are between NAFTA members or with our Asian trading partners, farmers should keep a close eye on these discussions, especially given the current administration’s policy approach. “President Trump’s trade policies are still evolving,” says Buchholz. “It is unclear whether tensions with China, Mexico and Canada will spill over and hinder the industry.”

Commodity markets remain far below what we saw during the bubble years. Producers should continue to be relatively cautious, even as prices continue to slowly climb back from 2016 levels. “During the bubble years, too many investors plowed money into commodity bets simply because they were convinced the Chinese economy would demand more oil, gas, pork and poultry,” says Buchholz. “Believe it or not, the Chinese demand is not insatiable. Rising commodity prices in 2017 do not guarantee they will keep jumping in 2018.”

Evolving regulatory market
Agriculture and energy prices have a close relationship. When energy prices rise, inputs like fertilizer and fuel become more expensive for farmers. President Obama’s regulatory policies added to the costs of farmers, according to Buchholz, but President Trump’s deregulatory approach will likely help control these kinds of operating costs. “A more lax policy toward fracking and domestic drilling should help keep energy prices from catapulting higher,” he says.

In addition to energy regulation, Buchholz also notes that President Obama’s environmental rules made it more difficult for farmers to switch crops to take advantage of better pricing, while President Trump appears to be taking a deregulatory environmental approach that could help farmers in the end. However, producers should monitor one important policy measure. “President Trump’s tougher stand on immigration may reduce the supply of labor to the agriculture sector,” says Buchholz. “There are a lot of factors to keep tabs on.”

For more insights from Todd Buchholz, check out his book The Price of Prosperity, his website at, and his Twitter feed at @econtodd.

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