Future of the Agricultural Sector: Purdue Extension and Financial Markets

Transcription

1 Future of the Agricultural Sector: Purdue Extension and Financial Markets Jason Henderson, Ph.D. Director of Purdue Extension July 7, 2015

2 Community Forums: Spring 2015 Nearly 800 attendees 21 Community Forums 6 Dean s Listening Sessions 2015 Community Forums Extension stakeholders Business & Industry Local & Regional Governments State & Federal reps. Community Foundation Proposed Forum Invitees Faith-Based Groups Educational Leaders Nonprofit & Voluntary (Civic) Groups Local Residents, including underserved groups

3 Communicating Results

4 The Future of Purdue Extension: Integration How do we strengthen integration of Extension? The original land grant mission Integration with other College missions Research: Discovery with impact Teaching: Co-curricular activities Integration with other colleges: nursing & enginneering Integration of campus and county Integration of community partners NEED STRONGER COLLABORATIONS DURING INITIAL STAGES OF DEVELOPMENT

5 The Future of Purdue Extension Integration with other College missions Workforce for Extension Salary challenges Work/life balance Master s requirement Timing of hiring County Openings February 2015

6 The Future of Purdue Extension Integration Workforce for Extension Reporting and Communication Purdue Extension needs to tell its story better We need different metrics We need stronger impacts and evaluation We need soundbites Did You Know?

7 What is your bumper sticker? Comment from participant at Hendricks County listening session, Spring 2015 Your Educational Partner for Life

8 Agriculture is Facing An Opportunity of a Lifetime, But. How does this Farm Boom End?

9 A Century of Farm Booms U.S. Corn Prices and Farm Real Estate Values Dollars per acre (Constant 2012 dollars) U.S. Farm Real Estate Values (Left Scale) Corn Price - 5 year average (Right Scale) Dollars per bushel Source: USDA 0

10 Today s Challenge: Shrinking the Balance Sheet Billions of dollars Federal Reserve System Balance Sheet: Assets Fed Agency Debt MBS Liquidity to Key Credit Markets Lending to Financial Institutions Long-Term Treasuries Traditional Security Holdings Source: Federal Reserve Bank of Cleveland Source: Federal Reserve Bank of Cleveland

11 What Leads to Higher Interest Rates? Drivers of Inflation INFLATION Cost-push: Will retirement of boomers push up wages? Demand-pull: How will Millennials and Boomers spend money? Where will international growth emerge?

12 Worker Compensation is on the Rise Employment Cost Index: Private Industry Workers Percent change from previous year Wages & Salaries Benefits Jan-02 Aug-02 Mar-03 Oct-03 May-04 Dec-04 Jul-05 Feb-06 Sep-06 Apr-07 Nov-07 Jun-08 Jan-09 Aug-09 Mar-10 Oct-10 May-11 Dec-11 Jul-12 Feb-13 Sep-13 Apr-14 Nov-14 Source: Federal Reserve database (FRED) 0.0

13 Home Prices will Shape Inflation 20.0 Percent change from previous year U.S. Home Prices West Lafayette U.S Jan-01 Aug-01 Mar-02 Oct-02 May-03 Dec-03 Jul-04 Feb-05 Sep-05 Apr-06 Nov-06 Jun-07 Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 Sep-12 Apr-13 Nov-13 Jun-14 Jan-15 Source: FHFA and Case-Shiller -15.0

14 Demographics are a Major Driver Annual percent change U.S. Population Growth Boomers Boomers Millennial Millennial Calculations based on Census data year olds year olds

15 World Growth: Where is the Next China? World GDP Growth 9 Percent change from previous year World High Income Countries U.S. Developing Countries China Latin America Middle East India Source: World Bank

16 The Monetary Policy Environment is Shifting The Federal Reserve indicates that rates could rise in 2015 Appropriate Pace of Policy Firming: Fed Funds Rate In the long run, normalization would add 3 basis points to interest rates? Will interest rates simply rise to long run norms, or will they rise higher before settling back to long run norms? How would a 3 to 4 percent increase in rates affect the financial health of your customers?

17 The Stages of Farm Investment Land Investments Equipment Investments Lifestyle Investments

18 Farmland Values Dip in Indiana Farmland Values Good Quality Land 35 Percent change from prior year Source: Federal Reserve Bank of Chicago

19 Farm equipment sales begin to fall, but remain historically high U.S. Tractor and Combine Sales 12 Thousands of Unit Sales Through May 2015, combine sales are down 39% and tractor sales plummeted 47% below 2014 levels Combines 4 Wheel Drive Tractors Source: Association of Equipment Manufacturers * Estimated based on sales through May 2015

20 Family Living Expenses Have Increased Substantially Source: Compiled from Kansas Farm Management Association Executive Summaries

21 How Strong are Farm Finances? Farm Debt Outstanding at Commercial Banks Percent change from previous year Non-real-estate Real Estate Source: FDIC, Call Report data

22 What is the Future of Farm Finances? Credit Conditions in Tenth Federal Reserve District Source: Federal Reserve Bank of Kansas City

23 What do we know about age demographics? Farm owner s are getting older. So are small business owners Age of Business Owners and Employees, 2013 Percent Under to to 88 Source: SBA Owners Employees

24 Not surprisingly, experienced farmers own more of the farmland.

25 But, they are also renting more land.

26 Management of Boomers vs Gen X vs Millennials How do they use information? Where do they get their information? How do they communicate with you?

27 Conclusion Low interest rates typically benefit debtors, not creditor. Inflation tends to benefit debtors, not creditors. What are farmers? Asset rich, cash poor. But Rising inflation will ultimately trigger higher interest rates and a new stage in agricultural cycles. Is agriculture prepared for this stage of the ag cycle? Will it have the liquidity it needs?

28 Additional Resources to Follow 1) Federal Reserve System: - FOMC Policy Normalization Principles and Plans - FOMC Longer-Run Goals and Monetary Policy Strategy - Recent FOMC statements, especially projection materials 2) Federal Reserve Bank of Kansas City - Ag Credit Survey (Tenth Federal Reserve District) - Agricultural Finance Databook (National information) 3) World Bank: Prospects Home>Data & Research>Prospects