The Perfect Storm for Agriculture

Oct 21, 2008 10:22 AM, By Dave Kohl

The island of agriculture, particularly the grain sector, has been oblivious to the economic downdraft of the general economy until recently. Is the perfect storm brewing? What are the potential ingredients?

First, the new presidential administration decides to lower tariffs and subsidies on alternative energy, reducing demand for grain.
Second, changes in tax laws encourage higher tax rates on earnings and capital gains, changes in estate tax paid and alterations to 1031 exchanges, requiring more taxation.
Third, the dollar strengthens compared to other currency worldwide, reducing export potential.
A prolonged U.S. and global recession reduces the demand for food and fuel.
A worldwide shortage of liquidity increases interest rates and results in an agri-lender or lender entrenchment.
The American public perceives that agriculture is doing well and creates a public and media backlash to the industry and new initiatives.

Storms could be brewing off the coast of the island of prosperity for grain agriculture. If many of these events co-exist and an unexpected black swan event occurs, a chain reaction could result very quickly, so start building up your economic storm fortress.

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.