A 1971 song observed that signs were everywhere, and today economic observers are asking similar questions:
- Are we seeing signs of a repeat of the 1980s?
- Or perhaps even the 1930s?
The speaking circuit buzzes with debate about which historical parallel best fits our current moment. Today we will contrast and compare the economic indicators of today with those of previous eras, with particular attention to the stagflation period of the 1980s and a few references to the Great Depression Era.
Here are six historic parallels.
Global trade
From a historical perspective, one notable parallel involves trade and sanctions. Tariffs and trade raised similar challenges a century ago. American producers' supply exceeded domestic demand, making exports critical for certain agricultural enterprises. Disruptions to those export markets wreaked havoc on cash flows and profitability.
Here’s a look at three relevant points on the agricultural timeline:
- The Smoot-Hawley Tariff Act, passed on June 17, 1930, raised tariffs on tens of thousands of imported goods. The intent was to protect American industries and farmers from foreign competition. The full effects were not observed until 1932.
- In the late 1970s, sanctions on trade due to conflicts in the Middle East led to a global market slowdown for American agriculture producers.
- Fast-forward to today, and enterprises such as soybeans, corn, cotton, almonds, dairy, poultry, and beef face similar uncertainty in the global marketplace due to geopolitics and regional warfare. Interestingly enough, competition from the Global South has intensified the issue, particularly in grain and row crops. The Global South advantage is driven by strategic investment and collaboration Brazil, Russia, India, China and South Africa, commonly referred to as BRICS.
Communist influence
An old saying says communist or autocratic leaders create bubbles. These three historical points drive home that inflation factor:
- In the 1970s, the Russian Wheat Deal, driven by the Soviet Union's desire and demand for commodities, created demand-driven inflation.
- The Great Commodity Super Cycle from 2007 to 2012 was caused, in part, by China's demand for commodities as it expanded its domestic and global economic presence.
- In the 2020s, inflation rose above record low levels for a number of years, fueled by a combination of factors including COVID stimulus worldwide and expansive monetary policy.
Interest rates
Another similarity across these eras is interest rates more than doubled. Current interest rate levels have risen sharply from 14-year record lows. While not as high as the late 1970s and early 1980s, when interest rates reached the high teens, the effect of higher interest rates on farm cash flows is similar to previous eras.
Farm debt growth
Both eras experienced significant growth in farm debt. Different banking practices pushed those numbers.
- Farm debt tripled during the 1970s. Loans were made based on character with minimal information.
- Loans today are often made based on collateral with a quick credit score and risk rating, supported by annual information updates.
Beef prices and livestock demand
A surprising fact is that both eras show record high beef prices with strong demand for livestock products.
Innovation in the overall economy
Another old saying offers this insight: "The U.S. innovates, Asia replicates and Europe regulates." A shift in economy-driving innovation showed up in the 1980s and is underway today.
- In the 1980s, much of U.S. manufacturing moved to Japan and Germany.
- Today, in this era of data, technology and AI, the pattern appears to be holding true. China and the Asian Rim are rapidly advancing in technology and AI. Europe appears to be in regulation mode.
So, here’s an overall perspective and a couple takeaways from this historical analysis.
Odds are against a widespread crushing downturn
Will the next five years be a repeat of the other eras? Not necessarily, as long as land maintains its value in many areas of the country. However, enterprises exposed to export markets with income streams that are not diversified could encounter a 1980s-type scenario.
Diversity builds resilience
Additionally, the debt to asset ratio is not always a good measure of financial well-being. With land or legacy assets being held by the senior generation with little or no debt, those producers who rent and lease and have non-diversified revenue streams could encounter issues very similar to the 1980s.
Adopt a proactive management mindset
While each era had its challenges and issues, opportunities were accelerated for those producers with a proactive management mindset. The lessons from the 1930s and ‘80s are remarkably consistent: Economic turbulence creates both winners and losers, with the difference often coming down to preparedness and adaptability.
Understanding these historical parallels allows today's agricultural producers to anticipate challenges, diversify risk, and position themselves to survive difficult periods, take advantage of opportunities, and emerge stronger when conditions improve.