The first quarter of 2008 is the tale of two economies. The general economy is moving into recession. The breadth and depth of the recession will be dependent upon converging events and factors. Businesses that export goods are doing quite well; however, this may be short lived if the global economy falls into a downturn. Consumers are reducing spending, particularly at the retail level and on large durable goods. The housing crisis is heating up in many states. People with buying power or debt capacity are sitting on the sidelines waiting for further devaluation of housing assets. The Sun Belt and West Coast are very vulnerable for further correction.
Government assistance packages and interest rate reduction by the Federal Reserve will have difficulty circumventing a correction in asset values and overall spending patterns.
Observations from the road find that truck and auto traffic on major interstates is much less, like in the 1980s. It appears that individuals are now starting to reevaluate economic priorities in many areas of the country. It is only a matter of time before these economic trends will affect agriculture, particularly the cropping side.
Financial prudence will be the letter of the law for most enterprises. This is a time to build a strong balance sheet and working capital reserves. Economically, the next year could be very interesting.
Editor’s note: Dave Kohl, The Corn And 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.