An Urban's Rural View

The farm-economy cycle and the national-economy cycle are sometimes out of synch. They can even resemble the seats of a seesaw: When one's up, the other's down.

Today we're witnessing a variation on that theme. The farm economy is down, but it hasn't thudded to the ground the way it did in the 1980s. The national economy is up, but nowhere near the highs it has reached in some past growth periods. Both ends of the seesaw feel uncomfortably suspended in mid-air.

Little wonder DTN's Ag Confidence Index is showing its most pessimistic readings since it was launched five years ago (http://tiny.cc/…). Corn prices are below break even for some farmers. Soybean prices are in the dumps, too. USDA projects a 32% decline in net farm income this year and a $9 billion decline in ag exports from last year's $152.5 billion.

The national economy is doing better—but far from great. Since the 2008 economic crisis it's been growing at around 2% a year. In the wake of downturns, 4% growth is closer to the norm. Unemployment has fallen but that's partly because aging baby boomers are dropping out of the work force.

Despite the well-publicized recent hikes for employees of Walmart and MacDonald's, wage growth is far from robust. The strong dollar is hurting export competitiveness. The latest employment report had job growth slowing dramatically, to only 126,000 new jobs in March, less than half the February figure (http://tiny.cc/…).

If there's a silver lining in this for farmers, it's that a sluggish national economy has helped keep interest rates low. With rents remaining stubbornly high even as crop prices fall, the last thing farmers need is to pay more for money, too.

That may change soon. There's bad news on the interest-rate front. There's good news, though, too.

The bad news is that sometime this year, interest rates are likely to start rising. At their March meeting the Federal Reserve Board's monetary-policy makers removed the word "patient" from their forward guidance on the interest-rate outlook (http://tiny.cc/…). Analysts and markets think this means the Fed is preparing to raise rates, perhaps as soon as June.

The good news is that rates probably won't rise very much or very fast. Fed policy makers know the economic recovery is as fragile as a glass trinket in a gift shop. They take to heart the warning, "If you break it, you've bought it."

The Fed is going to make the climb from a near-zero benchmark interest rate in easy stages. On average, Fed officials see the benchmark at 1.875% at the end of 2016, suggesting an increase of less than two percentage points in two years (http://tiny.cc/…).

As Fed chair Janet Yellen put it, "Just because we removed the word patient from the statement doesn't mean we are going to be impatient."

When, like farmers, you're riding a seesaw, a little gradualism on the part of the central bank may be the best you can hope for.

Urban Lehner

urbanize@gmail.com

(CZ)

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