Future of the Agricultural Sector: Purdue Extension and Financial Markets Jason Henderson, Ph.D. Director of Purdue Extension July 7, 2015
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
Communicating Results
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
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
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?
What is your bumper sticker? Comment from participant at Hendricks County listening session, Spring 2015 Your Educational Partner for Life
Agriculture is Facing An Opportunity of a Lifetime, But. How does this Farm Boom End?
A Century of Farm Booms U.S. Corn Prices and Farm Real Estate Values 3500 3000 Dollars per acre (Constant 2012 dollars) U.S. Farm Real Estate Values (Left Scale) Corn Price - 5 year average (Right Scale) Dollars per bushel 6 5 2500 4 2000 1500 3 1000 2 500 1 0 1880 1890 1900 1910 1920 1925 1930 1935 1940 1945 1950 1954 1959 1964 1969 1974 1978 1982 1987 1992 1997 2002 2007 2012 2014 2017 Source: USDA 0
Today s Challenge: Shrinking the Balance Sheet 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 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
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?
Worker Compensation is on the Rise. 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 Employment Cost Index: Private Industry Workers Percent change from previous year Wages & Salaries Benefits 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 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
Home Prices will Shape Inflation 20.0 Percent change from previous year U.S. Home Prices 20.0 15.0 West Lafayette U.S. 15.0 10.0 10.0 5.0 5.0 0.0 0.0-5.0-5.0-10.0-10.0-15.0 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
Demographics are a Major Driver. 3.5 3 2.5 2 1.5 Annual percent change U.S. Population Growth Boomers Boomers 1 0.5 0-0.5 Millennial Millennial -1 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 Calculations based on Census data 25-44 year olds 45-64 year olds
World Growth: Where is the Next China? World GDP Growth 9 Percent change from previous year 8 7 6 5 4 3 2 1 0 World High Income Countries U.S. Developing Countries China Latin America Middle East India Source: World Bank 2013 2015 2017
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?
The Stages of Farm Investment Land Investments Equipment Investments Lifestyle Investments
Farmland Values Dip in 2015. Indiana Farmland Values Good Quality Land 35 Percent change from prior year 30 25 20 15 10 5 0-5 2000 2000 2001 2002 2003 2003 2004 2005 2006 2006 2007 2008 2009 2009 2010 2011 2012 2012 2013 2014 2015 Source: Federal Reserve Bank of Chicago
Farm equipment sales begin to fall, but remain historically high U.S. Tractor and Combine Sales 12 Thousands of Unit Sales 12 10 10 8 8 6 6 Through May 2015, combine sales are down 39% and tractor sales plummeted 47% below 2014 levels 4 2 0 Combines 4 Wheel Drive Tractors 4 2 0 Source: Association of Equipment Manufacturers * Estimated based on sales through May 2015
Family Living Expenses Have Increased Substantially Source: Compiled from Kansas Farm Management Association Executive Summaries
How Strong are Farm Finances? 12.0 10.0 8.0 6.0 4.0 2.0 0.0-2.0-4.0 Farm Debt Outstanding at Commercial Banks Percent change from previous year Non-real-estate Real Estate 2006 2007 2008 2009 2010 2011 2012 2013 2014 12.0 10.0 8.0 6.0 4.0 2.0 0.0-2.0-4.0 Source: FDIC, Call Report data
What is the Future of Farm Finances? Credit Conditions in Tenth Federal Reserve District Source: Federal Reserve Bank of Kansas City
What do we know about age demographics? Farm owner s are getting older. So are small business owners. 60 40 20 0 Age of Business Owners and Employees, 2013 Percent 51.7 38.3 32.732.3 29.3 15.6 Under 35 35 to 49 50 to 88 Source: SBA Owners Employees
Not surprisingly, experienced farmers own more of the farmland.
But, they are also renting more land.
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?
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?
Additional Resources to Follow 1) Federal Reserve System: http://www.federalreserve.gov/monetarypolicy/ - 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 https://www.kansascityfed.org/research/agriculture - Ag Credit Survey (Tenth Federal Reserve District) - Agricultural Finance Databook (National information) 3) World Bank: Prospects http://worldbank.org/ Home>Data & Research>Prospects