Weakness in U.S. agriculture could spill over into other parts of rural economies, with macroeconomic headwinds exacerbating the downturn caused by the growth of global crop supplies outpacing demand, an official at the Federal Reserve Bank of Kansas City said on Friday.
"As you see tighter credit, as you see reductions in income, as you see fewer ... jobs available on the farm due to some of these downturns," said Nathan Kauffman, assistant vice president and Omaha branch executive at the Kansas City Fed. "You do see the potential there for some declines in Main Street activity."
A strong U.S. dollar as well as softening demand from key importer China amid intense stock market volatility there will continue to pressure the U.S. agriculture sector in 2016, added Kauffman, who was speaking in a speech at the U.S. Agriculture Department's annual Agricultural Outlook Forum.
The dollar has notched particularly big gains against Russian, Brazilian and Argentine currencies, further chilling overseas demand for U.S. supplies due to increased competition from those countries.
Most forecasters expect the supply glut to continue to weigh on prices.
"There seems to be less uncertainty about where things are headed," Kauffman said.
But the struggles in the farm economy, which Kauffman described as persisting, intensifying and gradual, still do not rival the collapse of the 1980s.
"I want to be careful to not suggest that the sky is falling because I do not think we are there," he said.
The interest rate environment, land values and debt to asset ratios were still much more favorable than a generation ago. And a strong farm economy earlier in the decade provided many producers with a buffer against the current downturn.