This is Chad Toyne with Part 1 of a 2-Part Special Report about What Makes A Farm Crisis, from Trader PhD Ag Marketing.
Lately, farmers have been concerned with the future. They see low crop prices, year-after-year, mostly because we’ve had big crops year-after-year. And now we’re being hit with tariffs on our grain exports.
Most of us have either heard about - or directly experienced - the farm crisis that we had in the 1980s. But most of us are not familiar with the other farm crisis we had after World War I.
Both farm crises were when we went bust, as a part of a boom-and-bust cycle.
First, let’s take a look at World War I. The Great War started in Europe in 1914 - and it lasted until 1918. Europe was at war, and European farmers had to leave their farms to go and fight. The world turned to the United States for grain. And commodity prices doubled.
Furthermore, the U.S. Government stoked the fire of the boom - with legislation. And that was the Federal Farm Loan Act. It gave long-term financing to farmers, and it was very popular. There just didn’t seem to be any end to the prosperity.
The war ended. European farmers went back to work on the farm, more grain was produced globally than ever before. And commodity prices fell by half. Record-Level farm values collapsed. Farmers defaulted on their mortgages over the 1920s.
It was a slow-moving crisis that came to a head in the Great Depression of the 1930s. That was when protectionist tariffs killed whatever was left of the export market. Farmers went bankrupt en-masse.
American agriculture eventually recovered.
Moving forward to the 1970s, the now-familiar ingredients of the boom-and-bust cycle – that is, government aid and export-led growth – returned, and we had a boom. But this time it wasn’t war that fueled the farming boom. It was an unusual combination of geopolitical events and tax policies that got things going.
In 1971, President Nixon took us off the gold standard – and that meant flexible exchange rates. The U.S. Dollar plummeted, and inflation raged out of control. That was bad news for the economy, and it was good news for the American farmer: we could now compete with other big ag exporters like Argentina.
That got the boom off to a real good start. Then came crop failures overseas. And the U.S. farmer was raking it in. We even began exporting massive amounts of grain to the Soviet Union. Between 1970 and 1973, both grain exports and farm income more than doubled.
The Federal Government kept a lot of the old price supports and subsidies in place. Agriculture looked like a surefire place to invest money, especially when inflation was eroding the purchasing power of cash. Farmers kept borrowing money to buy land, simply to gather more of an asset that seemed only to increase in value.
But that’s STILL not all. Government had tax policies - a combination of investment credits and accelerated depreciation schemes – all giving incentive to farmers to just keep expanding.
What a boom we had! But then it all fell apart.
What happened? Next time, in Part 2, I’m gonna tell you what happened.
I’m gonna tell you where I think we’re at now in what started out as an Ethanol Boom, and what to look out for in the future.
That’s it for today. I’m Chad Toyne, and this has been Trader PhD.
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