What Happens in Ag Economy Doesn't Stay in Ag Economy

Published online: Apr 24, 2018 Articles Anne Wallace Allen
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Source: Idaho Business Review

For as long as I can remember, I’ve heard rueful jokes about the joys and sorrows of making a living from agriculture. The price farmers pay for their independence and self-reliance is financial uncertainty and a living that is subject to the whims of weather, markets, and a million other things that can change.

Agriculture’s cyclical nature affects everyone. Agriculture makes up $16 billion or 20 percent of the sales in Idaho, and accounts for 14 percent of Idaho jobs, said Agriculture Department Director Celia Gould, a panelist on April 3 at the Idaho Business Review breakfast series discussion on agriculture in Boise.

That means the current downturn in industries such as dairy and potatoes is an Idaho problem, not just a problem for farmers, Gould told the audience.

“It translates into every one of your businesses as the dollar trickles through the state or through the tax base,” she said.

Veteran Magic Valley farm lender Jon Maughan says things are as bad as he’s ever seen in some markets right now, particularly in dairy. Maughan has been studying the Magic Valley’s ups and downs for more than 30 years, presently as managing director and vice president at Rabo Agrifinance.

Dairy production is high; milk prices are low.

“For the first time of living in 30 years in the valley, we have dairy facilities that are shutting down because there’s just no place for that milk to go,” said Maughan, also a panelist at the Breakfast Series. The down cycle right now is intense.

“We have one of the larger processors that’s planning on a large expansion, but they’re starting now, and that won’t alleviate the problem for two years,” Maughan said. “As a lender, just looking down the road, you try not to panic. You hope that you’ve selected the right people to do business with and you kind of hunker down in times like this and try to ride out the storm.”

Idaho’s dairy industry has doubled since 2002, and now accounts for one-third of the state’s agricultural production. The industry now has about 475 dairy operations and more than 580,000 cows – nearly one cow for every three human residents statewide. Much of that production growth has been happening in the Magic Valley, which is now host to Chobani, the world’s largest yogurt plant. Southern Idaho milk production supports nearly two dozen other large milk products processors including Glanbia, Lactalis, Agropur, Darigold, Meadowgold and Idaho Milk Products.

There has always been enough processing capacity to handle the output until now, Maughan said. But late last year, the milk supply started to overtake the production capacity. Now, “what’s happened is that there is such an overabundance of milk supply that the milk processors have basically said, “We can’t take any more milk,’” Maughan said.

Things are also amiss with Idaho’s other large staple crop, potatoes.

“You almost used to be able to set your clock by how potato markets would go,” Maughan said. “You’d have one really, really good year, then you’d have a really bad year, then you’d have two okay years, then you’d have another good year, and you could just go through that cycle.”

That cycle has gone off-kilter in recent years after a run of low potato prices prior to 2017. The perennial problem: Now that potato prices have risen, farmers will plant more potatoes, sending prices back down again.

“If you make a widget, you just go in and flip the switch and say, ‘We need more widgets,’” said panelist Mary Hasenoehrl, a potato farmer and a board member on the Idaho Potato Commission. “Well, in agriculture it takes a year to get that product out. So if the price is good, the next year we plant more, because we didn’t have enough in the market the year before. Then we have too many potatoes or whatever crop we’re growing.”

Overall, Idaho’s economy is as strong as it has ever been. According to the Bureau of Labor Statistics, the labor force is growing; employment is rising, and statewide unemployment is remaining steady at a very low 3 percent. Activity in most business sectors, such as manufacturing and financial services, is on the increase.

But agriculture traditionally doesn’t follow the economic trends of the larger economy.

“In my history of 30 years, whenever the rest of the economy and the country is doing really well – I think we can all agree that things are doing pretty well in business communities and everywhere else – agriculture is always the last to be pulled along,” Maughan said. “It’s the last to benefit from any increase in the business cycle.”

And for other businesses, that’s worth watching.

“If you look far enough back in your own individual business, whether you’re selling cars or you’re selling groceries, in some form or fashion, your businesses will be impacted by how well or how not well agriculture is doing in particular,” Maughan said.