Midwest Agriculture Conference: Who Owns Midwest Farmland? And Why?

DAVID OPPEDAHL: Welcome to the Federal Reserve Bank of Chicago. My name is David Oppedahl, and it's my pleasure to introduce our President and CEO Austan Goolsbee, who's been approaching the end of his first year here at the bank. And he's been able to visit all around the district, so it's great to have him come and introduce our Ag Conference today. Welcome, Austan.

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AUSTAN GOOLSBEE: Good morning. Like David said, I'm the president of the Federal Reserve Bank of Chicago. I'm super excited to welcome you guys here to the Midwest Agriculture Conference.

I'm coming on one year, though, at the Fed, as I say, we're like reverse dog years. People have been here seven years. They're like, I'm a rookie. So I can't give you a ton of wisdom yet.

I'm still learning. This is our 19th year for the Agriculture Conference, and for 19 years, we've been bringing together key participants in regional agriculture and from around the country. And it's a testament to our Chicago Fed commitment to understanding, supporting this vital sector of the Midwest economy.

If I can brag a little, earlier this year, our ag letter publication that many of you know, which focuses on understanding what's happening on the ground in the agriculture sector in our district, published its 2,000th issue. It's been publishing continuously since the 1940s, which, as I told David, that's older than the GDP data. So that's commitment on our part.

I want to, first, thank David for his guidance of our ag research for writing the ag letter that many of you follow and for organizing this conference today. I want to acknowledge many leaders in the sector who are taking the time to be here with us, today, and sharing your knowledge as part of the panel discussions. And, of course, I want to thank the audience, both here in Chicago and online.

This is my first Ag Conference as the Chicago president, and it's great to see that we're continuing on this tradition. For those of you who are regulars, it will not surprise you to learn that David and his colleagues have put together a strong conference this year whose theme is who owns Midwest farmland and why. Actually, David, that's two themes. Our two themes this year are who owns the farmland and why.

But before I talk a little bit about today's program, I thought I would just share a couple of thoughts about Midwest agriculture, the lay of the land, as it were, and these come out of the research department here at Chicago, where they're always monitoring the current economic conditions in the district. A critical component of that research work is talking to people across the district in the AG economy and in the broader economy to figure out where it's headed. The health of agriculture remains vital to the banking system of the district.

We're home to nearly 30% of us agricultural banks that are headquartered in the seventh district, and our states, Illinois, Indiana, Iowa, Michigan, Wisconsin, produce huge proportions of many of the critical ag output areas. Last year, we were 48% of corn. We were 43% of soybeans. We were 47% of hogs and pigs. And if anybody had a pumpkin pie last week at Thanksgiving, you will know that Illinois alone is more than 90% of the canned pumpkin is grown in the United States, and number two is Indiana, and number four is Michigan.

So we are well represented for your Thanksgiving table. You also know food manufacturing is substantial in the district. Wisconsin is the nation's number one producer of cheese, and this Fall, as the harvest approaches completion, district corn and soybean output are on track to be the second and fourth largest on record, despite the widespread drought this Summer. Indeed, the national corn crop, David tells me, might end up being the largest ever.

Prices are down from last year's record levels based on the most recently available price data. District corn and soybean revenues are projected to be down 25% and 14%. That's factoring in to the value of agricultural land, which is something we track closely at the Fed and which is going to be the subject of discussion of many of our panels. But there have still been big year over year increases in farmland values over the last three years.

Since the third quarter of 2020, our data shows that agricultural land values are up a staggering 49% in just that period. We're seeing the growth slowing a bit, but it remains quite strong. Agricultural land value in the district rose 5% from a year ago as of the third quarter of 2023, though, that's the smallest gain in three years.

Food price inflation has been well above levels comfortable for average Americans. It peaked in August of '22 at 11.4% at an annual rate. Now, most of the cost of food, as you know in the US, comes from after the products leave the farm. The farm share of the food dollar is $0.15, but overall, we have made progress on inflation outside of the food sector. It's been coming down. It's not yet down to target, but 2023, we are on path to set the highest drop in the Inflation rate in 71 years.

The Fed tends not to look at energy and food inflation and, instead, to look at core, which drives my mom crazy. She's like, what do you mean you don't watch energy and food inflation? That's the only thing that we should pay attention to. The reason why we don't, of course, is food and energy, as you know, are much more variable than other parts of inflation. So we feel they don't give exactly the-- they don't give the best characterization of what's the underlying state of inflation.

At lunch, my friend and colleague Anna Paulson, who's the bank's Executive Vice President, Director of Research, is going to dig into that a little more for last year in her keynote address. Land, of course, is a huge topic in agriculture. It is a central theme that we're going to explore here today. Your panel discussions are going to characterize what's happening in farmland investment, what some of the emerging issues are, like foreign ownership, barriers to entry into farming, how interest in energy development, solar fields, and wind farms is impacting farmland.

Side note on the pumpkins, the 90% of commercial pumpkins are grown within a 100 mile radius of Peoria, Illinois. That is also the location of two shut down, giant coal fired power plants, which are on the two grids. There are two. There's an Eastern grid and a Western grid.

So every solar producer in the country, if not the world, is like, if we could put solar panels all around there, we can hook on to a massive capacity grid. But it overlaps with the pumpkins. It's in the same place, so I don't how much that pie is going to cost next year at Costco. We'll have to see. So, again, welcome everybody to our Ag Conference, and let me turn back over to David to come up here to introduce the first panel.

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