Report outlines forces shaping the rural economy
Expect an expanding global economy, strong U.S. consumer confidence and persistent economic recovery in many rural areas, but temper that optimism with another year of on-farm belt tightening due to low commodity prices.
That’s the 2018 outlook from a wide-ranging report compiled by CoBank, a $124-billion cooperative bank serving rural America.
“The rural economy is uniquely impacted by what happens in Washington, the broader U.S. economy and around the world,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange Division. “This year, rural America will rise with the broader economic tide, but it will also contend with persistent barriers to prosperity.”
The report offers a look at these 10 key factors that will shape rural communities and the market sectors that support them:
- Global economy — The challenge for the world’s economies will be how to properly manage the expansion at hand and address structural impediments that have been ignored during the decade-long recovery.
- Monetary policy — Central banks around the world will strategize around the question of whether wage and consumer prices will accelerate. Foreign banks sound more hawkish in early 2018, and the Federal Reserve will continue to raise interest rates amidst larger fiscal deficits and leadership transition.
- U.S. economy — Consumer confidence and unemployment rates are at their best levels since 2000, and inflation-adjusted wages have been growing faster than historical averages since 2014. Consumers are saving less and spending more. Business investment will rise in 2018 to keep up with growing demand.
- Rural economy — Rural America has lagged urban areas in recovering from the 2008 economic crisis, but rural population, jobs and incomes are all trending in the right direction. Current efforts to improve rural broadband access offers an opportunity to make a significant dent in the rural/urban economic divide.
- Federal policy — Tax reform has brought changes to individual and corporate tax rates and ushered in the 199A deduction, which benefits agriculture co-ops and their members. The deduction, however, is controversial and is being reviewed by the Senate. Congress will also attempt to pass an infrastructure package and the Farm Bill before the mid-term election.
- Rural infrastructure — The power and energy industry faces an environment of uncertainty due to tax reform, possible import tariffs on wind and solar equipment and oversupply in power markets. Meanwhile, weak sales and rising costs are contributing to financial strain across water utilities. And in communications, competition is heating up over who controls the infrastructure that distributes data through broadband. Rural communities can expect further investment in broadband and towers in 2018.
- Agricultural economy — The agricultural commodity surplus will continue to depress prices and shrink farmer working capital. Farm debt loads will continue to climb as prices fall short of high production costs. Market conditions have also resulted in a sharp divergence between farm income and farm asset values. The timing and extent of the market’s correction will be determined by much more than commodity prices and cash flow.
- Agricultural trade — NAFTA will be the primary focus for agriculture in the first half of 2018. All three countries involved will be incentivized to come to an agreement before the Mexican presidential election in July. Other trade deals in flux that could greatly affect U.S. agriculture exports include the rebooted Trans-Pacific Partnership and the U.S.-Korea trade agreement.
- Grain, farm supply and biofuels — The grain, farm supply and biofuels sectors face a turbulent year ahead as the industry further adjusts to a protracted cyclical downturn. Abundant supplies, low market volatility and rising interest rates will constrain farm finances and accelerate the forces of consolidation.
- Dairy and animal protein — The same abundant grain supplies that have harmed crop farmers have boosted profitability and spurred expansion in the U.S. livestock sectors. And more good news is expected in 2018. Price pressure will be an issue as the expansion continues, and trade uncertainties will loom large.
The full report is available at www.CoBank.com.
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