Is the farm economy as strong as it looks?

We are seeing a complete change of scale in the agricultural economy. Higher prices for products, higher prices for inputs and higher prices for land. The biggest challenge is trying to determine the status of the agricultural economy. "In the big picture, agriculture looks like a very healthy economy," says Mike Krutza with Lighthouse Leadership, "But this rise and ramp-up in commodity prices probably gives the perception of huge profits but in fact, there aren't."

Krutza was in the farm lending business for more than 30 years and served as CEO of a Farm Credit Service in Wisconsin. As he puts it, "I cut my teeth on the farm crisis of the 80's." So are we headed for another farm crisis like that? Krutza says, "I don't think it has to be." He says there are some things we don't know that could affect it, "We still have unbelievably low interest rates and if you recall we went from 7% to 14% in the 80's." He studied interest rates from the 1930's through the 1980's and found in a more than 40-year period there were only 41 months that the interest rate was over 10%. "So, it doesn't take a long time to effect huge changes." He cautions with the shaky financial times for the general economy and government bailouts like the Bear Stearns situation, we could see interest rate increases.

Kurtza says the big difference is energy, "There's a fundamental structural change in operating expenses right now." He says 70% of the expenses in an operating statement have to do with energy costs and that is a whole new debt element that producers can't really do much about. Some contend the government's renewable energy policy is adding to the problem, Krutza doesn't agree. In fact, he says we are way behind where we should be on the road to establishing a renewable biofuels base in this country. "We've got to find a way to get down to some sort of renewable energy," he sees it as "An independence issue for the country."