Agriculture linked to housing, energy market | Federal Reserve policies send land and cattle feed prices up
TAMPA, Fla. — Economist Michael Swanson has a riddle he likes to ask: how does someone become a millionaire in Iowa?
The answer: sell 80 acres of farmland.
Swanson said agriculture is caught in the crossfire of U.S. government policy that attempts to relieve unemployment, buoy up the housing market and maintain the ethanol industry, which relies on corn.
“The economy is a mixed up mess all the time. Sometimes it is healthy and sometimes it is hurting you,” he said during the National Cattlemen’s Beef Association’s annual convention held in Tampa Feb. 5-9.
Read Also
Alberta crop diversification centres receive funding
$5.2 million of provincial funding pumped into crop diversity research centres
Swanson, who works for the Wells Fargo bank, questions whether the Federal Reserve policies of low interest rates and continued government debt are sustainable.
“I think they are trying to re-inflate the price of housing,” he said.
Americans had $6 trillion in home owners’ equity in January 2000, which is the value of the house, less the debt. It had increased to $13 trillion by 2005 but plummeted after the 2008 recession and is now $7.7 trillion.
Farm and ranch land was worth $1 trillion in 2000 and has since increased to $2.2 trillion.
“The Federal Reserve is trying to re-inflate the value of homes so it can get people out from underneath their mortgages, but are you going to create more problems along the way?” he said.
“The agriculture sector is going to be collateral damage to this policy, but there are a lot more voters who own homes than ranch ground.”
He said government policy has also linked agriculture to the energy sector by passing a renewable fuels standard that forces a portion of gasoline to contain biofuel. Corn demand soared after the standard was put in place and prices increased, but the livestock industry shuddered when corn surpassed $7 a bushel.
“Cattle people don’t always love ethanol policy because it has changed the way the game was played,” he said.
However, corn growers like it because they receive the benefits of high grain prices.
Nevertheless, agriculture, energy and manufacturing are all interconnected and are able to grow and strengthen the U.S. economy.
Swanson said energy is a mature industry that has surprised many with its 20 percent year over year growth in recent years.
Domestic drilling has increased and less oil is imported.
The U.S. has traditionally imported 12 million barrels per day, but that has dropped to less than eight million barrels. It is also exporting about one million barrels of refined product for the first time.
