The Recession Wall Street Isn't Talking About

In the years of 2008 and 2009, a crippling recession was sweeping the country. America was suffering a terrible hangover from a reckless construction boom. The overbuilding of homes drove down home values, mass mortgage defaults triggered defaults in mortgage backed bonds, and the commercial real estate sector was suffering many of the same ills. Several banks failed as a result of these events.

The year is now 2015, and the worst days appear to be behind us. While policy makers are not satisfied with the slow pace of growth, it is growth nonetheless. The latest economic fears in the news surround what the Federal Reserve will do with interest rates, and what direction the stock market is heading. There doesn’t appear to be much concern with a specific industry wreaking havoc.

But those of us in the upper Midwest have a dirty secret. While the rest of the country was experiencing the pains of recession, we saw record years in farming and oil development. Our economy experienced a slowdown, but we didn’t feel a largescale slide backwards. And now the shoe is on the other foot; agriculture is entering difficult times, while the rest of the country isn’t aware or concerned with this issue.

How did it happen that agriculture was strong in a recession, and now it is weakening in a time of growth? Some of it has to do with commodities. When people were scared during the recession, they pulled investments out of real estate and securities, and preferred to buy commodities. If you recall, we saw record prices in gold, oil, and even corn and wheat. This wasn’t entirely to blame for the run up of agricultural commodities, because there were drought stricken areas in other parts of the world at this time too, putting less affected American producers on top.

Values in ag land had already been on the rise. It was becoming clear that advances in farming and genetics allows higher yields on the same price of land. The rising commodity prices only threw fuel on the fire, and we saw continued strong growth in ag land values. But then, the economy started to mend, and commodity prices across the board fell, as people felt comfortable getting back into their traditional investments. And now, local farmers are feeling the pinch. When corn could be sold for $6 or $7 a bushel, it made sense to buy land at a premium. But, having to pay the debt service on that newly acquired land with corn at only $3.50 or $4 a bushel, the economics have become unfeasible.

Now, as the rest of the country sees a return to normal conditions, the ag economy is seeing prices fall for land used in corn production. This will no doubt lead to stress on area farmers and their financial institutions. There could be a recession brewing, but it is interesting, people aren’t discussing it. At the very least, we are in for some significant turbulence in the ag economy.

With respect to beef production, we have also seen record run up in the price of pasture, due to a recent spike in beef prices. Hopefully ranchers and lenders are taking note of the emerging farmland issue, and not allowing ranchers to assume current prices will remain where they are at. Likewise, one day the price of beef will fall, bringing the price of pastureland down with it too.