Jason HendersonVice President and Branch ExecutiveFederal Reserve Bank of Kansas City – Omaha Branchwww.kansascityfed.org/omahaJune 16, 2009

The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

The Economic Recovery is

Underway

Concerns Shift from Growth to

Inflation

Implications for Agriculture

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Real GDP Growth

Annual percent change

Source: Bureau of Economic Analysis Federal Reserve Board of Governors

Federal Reserve ProjectionCentral Tendency

“U” “W” “V” “L”

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Unemployment Rate

2007 Monthly Average

Source: Bureau of Labor Statistics

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Unemployment Rate

May 2009 – April 2010 Average

Source: Bureau of Labor Statistics

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

U.S. Monthly Retail and Food Sales

Billion dollars

Source: U.S. Census Bureau

2007

2008

2009

2010

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Thousands

Source: U.S. Census Bureau

U.S. Housing MarketsIndex

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

IndexU.S. Manufacturing Activity Indices

Source: Institute of Supply Management

Non-Manufacturing

Manufacturing

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Structures

Equipment and Software

Corporate Profits and Nonresidential Fixed Investment

Percent change from year ago

Source: Bureau of Economic Analysis

Corporate ProfitsAfter Tax

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Source: Bureau of Economic Analysis and Federal Reserve Board of Governors

Billion dollars

U.S. Real Net Exports of Goods and Services and Value of the Dollar

Index

Broad Dollar Index(right axis)

Real Net Exports(left axis)

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

U.S. Government Outlays

Billion Dollars

Source: Congressional Budget Office, March 2010

Projected

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

U.S. Debt as a Percent of GDPPercent

Source: Congressional Budget Office, November 2009

CBO Alternative Fiscal Scenario

CBO Extended Baseline Scenario

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

The Economic Recovery is

Underway

Concerns Shift from Growth to

Inflation

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Money * VelocityPrice =Quantity

Definition of Inflation: Too much money

chasing too few goods

MVQ

Quantity Theory of Money

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Federal Reserve Balance Sheet: AssetsBillion Dollars

Source: Federal Reserve Bank of Cleveland

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Hold to maturity Sell assets Keep reserves on deposit at the

Fed. Interest on excess reserves Reverse repurchase agreements Term deposits

All strategies lead to higher interest rates. When? How fast?

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Nonfarm Employment Change and Unemployment Rate

Thousands

Source: Bureau of Labor Statistics

Percent

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

•Financial markets

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Billion dollars

Source: Federal Reserve Board of Governors

Farm Debt Outstanding at Commercial Banks

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Percent

Source: Federal Reserve Board of Governors

Charge-off and Delinquency RatesOn Agricultural Loans

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

•Financial markets

•U.S. consumer demand

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Percent change from previous year

U.S. Food Expenditures

Source: USDA2010 data through March

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

•Financial markets

•U.S. consumer demand

•Export activity

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

GDP Growth

Source: IMF, April 2010

Percent Change

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Billion dollars

Source: USDA

U.S. Agricultural Exports

2007

2009

2008

2010

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Index

Source: Federal Reserve Board of Governors

Value of U.S. Dollar(Broad Index)

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

•Financial markets

•U.S. consumer demand

•Export activity

•Energy markets

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

World Crude Oil Supply Balance

Million barrels per day

Source: Energy Information Administration

Forecast: May 2010

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Dollars per barrel Dollars per thousand cubic feet

Crude Oil and Natural Gas Prices

Source: Energy Information Administration

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

•Financial markets

•U.S. consumer demand

•Export activity

•Energy markets

•Farmland values

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Ratio

Calculations based on Iowa State University and University of Nebraska data

Farmland Values to Rent Ratio

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Source: USDA

U.S. Debt Repayment Capacity Utilization

Farmers do not have enough income to service debt

Farmers do have enough income to service debt

Index

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

•Financial markets

•U.S. consumer demand

•Export activity

•Energy markets

•Farmland values

•Government policy

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

Financial markets and regulationEnvironmental policyEnergy policyHealth care policyAgricultural policyRural development???

Federal Reserve Bank of Kansas City – Omaha BranchRegional, Public and Community Affairs Division

The economic recovery is underway. Stronger consumer demand is boosting business

activity.

But, deleveraging will limit the recovery.

Questions will switch from growth to

inflation. Will high unemployment limit inflation?

What will start the “chasing”?

The recovery brings opportunities and risks

to the farm sector.