Did So-Called Obama Era Regulatory Uncertainty Hurt Agricultural Equipment Investment?

As implied by  WSJ ed board, via Thune, e.g. Mebbe. Sure doesn’t look like it at first glance. On the other hand, through 2018, Trump’s trade policies and associated trade policy uncertainty haven’t helped much…


Figure 1: Gross investment in agricultural equipment, in mn. $ (blue), and mn. Ch.2012$ (red), both SAAR. Quarterly real figures obtained by deflating by quadratic interpolation of annual deflator. Source: BEA via FRED, and author’s calculations.

And what about uncertainty. Using the Baker-Bloom-Davis index…


Figure 2: Gross investment in agricultural equipment, in mn. Ch2012$, SAAR (red, left scale), and economic policy uncertainty (baseline) (teal, right scale). Quarterly real investment figures obtained by deflating by quadratic interpolation of annual deflator. Source: BEA via FRED, policyuncertainty.com, and author’s calculations.

In fact, farm prices (in relative terms) seem to be a bigger determinant of agriculture equipment investment (as makes sense).


Figure 3: Gross investment in agricultural equipment, in mn. Ch2012$ (red, left scale), and log relative PPI for farm output to CPI-All. Quarterly real investment figures obtained by deflating by quadratic interpolation of annual deflator. Source: BEA, BLS via FRED, and author’s calculations.

A first differences regression of ag equipment investment on relative prices, GDP, policy uncertainty and real ten year interest rates confirms the primacy of prices (none of the other regressors have statistically significant coefficients).

Hence, relative low levels of agricultural investment (despite the investment incentives incorporated into the Tax Cuts and Jobs Act (TCJA)) can be attributed in part to the low prices for US agricultural goods; that in turn can in part be traced back to the retaliation imposed on US agricultural products (e.g., soybeans) and the strong dollar fostered by expansionary fiscal policy.

23 thoughts on “Did So-Called Obama Era Regulatory Uncertainty Hurt Agricultural Equipment Investment?

  1. Willie

    Amazing isn’t it! When an investment in equipment leads to profitable use of that equipment, the investment makes sense and gets made. And likewise, when it doesn’t, it doesn’t. Demand and profitability drive it. Demand goes up, price goes up. Then investment goes up to profitably satisfy demand. Go figure! Somebody should explain this to certain people in powerful positions. They have inexplicably missed it.

    Reply
  2. pgl

    “In fact, farm prices (in relative terms) seem to be a bigger determinant of agriculture equipment investment (as makes sense).”

    Nice point but wait for it. Bruce Hall and CoRev will blame Obama for the decline in prices during his 2nd term relative to the yuuuge increase during his first term. But, but, but – these prices rose during Obama’s first term? FAKE NEWS. Or was that due to Reagan’s 1981 tax cut? That’s it!

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    1. Bruce Hall

      pgl (or whoever), thanks for the lead-in.

      Berry is not alone. Many of the exhibitors at Dakotafest saw one effect of this belt-tightening year in the Corn Belt: Farmers aren’t buying or trading in the pricey equipment because of lower commodity prices and a 95% reduction in a federal tax break that has traditionally benefited the sector.

      “If they can’t buy more equipment, we are going to have to start laying off people,” said Berry, who represents Unverferth Manufacturing, that makes and markets, among other things, tillage, hay and grain handling equipment.

      The U.S. appears headed for record-breaking corn and soybean harvests this year, but the abundant yields are driving prices lower, significantly affecting farmers’ profitability since the crop will end up costing more to produce than they can immediately sell it for. Even before planting season began, the U.S. Department of Agriculture in February predicted this year’s farm income would sink to levels not seen in four years because of falling commodity prices.

      Yes, this was all Trump’s doing. I can’t agree with you more.

      https://www.usatoday.com/story/money/business/2014/08/31/agriculture-equipment-sales-decline-in-2014/14910043/

      One might ask if there were other factors affecting equipment purchases after 2010… oh, like significantly lower interest rates than prior to the recession. Then, just perhaps, after the investment boom, even low interest rates couldn’t offset the reality of the low commodity prices in 2014. (I won’t bother with a chart about interest rates since 2000).

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      1. pgl

        Leave it to Bruce Hall miss the point of his own link!

        “The U.S. appears headed for record-breaking corn and soybean harvests this year, but the abundant yields are driving prices lower, significantly affecting farmers’ profitability since the crop will end up costing more to produce than they can immediately sell it for. Even before planting season began, the U.S. Department of Agriculture in February predicted this year’s farm income would sink to levels not seen in four years because of falling commodity prices.”

        Bruce – please pay attention. Prices rose dramatically during Obama’s first term. We have noted this 100’s of times and you still don’t know this? Now your own story notes that it was an outward shift of the supply curve that brought prices back to their 2010 (“not seen in four years”). Obama was such an evil socialist causing a very productive farm sector. Evil, evil, evil – at least to mentally challenged Trumpsters like you!

        And yea – it would take a real idiot to suggest low interest rates led to less investment demand. But you just did!

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        1. Bruce Hall

          Leave it to pgl to assume I missed the point when he did… and misread what was written.

          Once the recession was ending and the interest rates were near zero, farmers took advantage of the low rates along with tax breaks to purchase equipment. When Obama ended the tax breaks and commodity prices dropped like a rock in 2014 (I don’t believe Trump was president then), investment in farm equipment declined rapidly despite low interest rates.

          Just a thought, could the purchases of that new equipment increase production capabilities so that there was excess supply and prices declined? No, it was Trump’s fault. Everyone was anticipating his tariffs.

          Reply
          1. pgl

            “When Obama ended the tax breaks and commodity prices dropped like a rock in 2014 (I don’t believe Trump was president then), investment in farm equipment declined rapidly despite low interest rates.”

            Then Brucie goes again. It is all Obama’s fault that farms were so productive. I can only imagine how many times you have to beg Trump to throw Brucie a bone. Atta boy Brucie!

          2. pgl

            “could the purchases of that new equipment increase production capabilities so that there was excess supply and prices declined?”

            I know your worhsipping of Trump 24/7 tends to warp the brain but could you bother to even rea a graph. Investment has been low for the last several years. Even the village idiot Lawrence Kudlow is not as inept as you are when it comes to supply-side silliness.

            I should stop having conversations with you as the neighbor’s retarded dog makes more sense than you do!

          3. pgl

            Bruce Hall lied about the role of tax policy here:

            “When Obama ended the tax breaks”. REALLY? Obama ended what tax breaks? And when? Of course accusing you of lying here may be a bit strong as you are stupid enough to read this and get confused:

            “Hence, relative low levels of agricultural investment (despite the investment incentives incorporated into the Tax Cuts and Jobs Act (TCJA)) can be attributed in part to the low prices for US agricultural goods”

            Of course one has to ask how much of an effect any tax benefit passed in late 2017 matters when goods prices are low. Of course leave to Trump’s pet poodle to tell us that Obama ended tax breaks. Atta Boy Bruce – master Trump loves liars like you!

      2. pgl

        “pgl (or whoever)”.

        Yes the serially incompetent Trump sycophant acting all cute at one level – but really jerkish at another level – is desperate to curry favor with his master. Hey Bruce – we know Trump used to hang with rich dudes who seduced teenage girls. I presume you are a teenage boy desperate to be seduced yourself. Good luck with that!

        Reply
  3. pgl

    With the lower farm prices, I wonder how many farmers are incurring new debt to make ends meet. Of course, we would then be seeing higher debt as a result of lower farm revenues. But wait – Princeton Stevie says that higher debt always leads to more revenue. And of course he is THE expert when it comes to all things accounting!

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  4. pgl

    The Twitter struck back on Senator Thune! This quote, however, needs to be challenged:

    “Average hourly earnings for production-level manufacturing workers have grown at an annual rate of 2.8% during the Trump Presidency”

    That is a nominal series. Does Senator Thune not realize we still have inflation? Or does he simply repeat lies from right wing sources because that’s his job?!

    Reply
    1. pgl

      Checking with BLS. Nominal total compensation has risen by only 4.2% over the past 8 quarters. In the meantime, BEA reports that the consumption price deflator has risen by 3.3% over the same period. Gee – an average annual increase in real compensation closer to 0.5%. If the Wall Street Journal and Senator Thune had been remotely honest on this issue – that might have been nice. Of course they would have been hammered by a Trump tirade so I can see why they flat out lied on this matter.

      Reply
  5. pgl

    The WSJ entitled their pack of lies “A Tale of Two Economies”. But wait that title is taken:

    https://www.forbes.com/sites/howardgleckman/2019/03/13/a-tale-of-two-economies-comparing-trumps-economic-forecast-with-cbos/#61d20a6d6747

    A Tale Of Two Economies: Comparing Trump’s Economic Forecast With CBO’s

    Trump’s fiscal plan forecasts the economy will grow by 3.2 percent this year (after adjusting for inflation), at least 3 percent annually through 2024, and by about 2.8 percent from 2026 through 2029. By contrast, CBO projects real economic growth of about 2.7 percent this year, falling to 1.9 percent in 2020, then ranging from 1.6 percent to 1.8 percent through the next eight years. On average, CBO projects the economy will grow about a full percentage point more slowly over the next decade.

    Reply
  6. Moses Herzog

    Off-topic
    Saw a couple good tweets and thought I would share them:
    https://twitter.com/stone1492/status/1149380886112198656

    https://twitter.com/Pappiness/status/1149350059999408133

    This false claim by Paul Ryan is hypocritical in so many ways it would be hard to list them all. But the first would be how many times he, John Boehner, and Mitch McConnell said they couldn’t get legislation passed because of the Democrats. Really!?!?!?! He’s in your party, you’re too gutless to confront him, but you want the Democrats to pass all of donald trump’s legislation?? Paul Ryan has said so many contradictory things, the only feckless dog who shows up to lap up the food stains on his pants anymore is David Brooks.
    https://www.nytimes.com/2011/04/08/opinion/08brooks.html

    Reply
  7. Moses Herzog

    Off-topic
    At least one of our good blog hosts and some regular readers are interested in this topic. So if I find what I deem “above average” articles or above average writing on immigration policy and the application thereof on the southern border, I like to pass them on. I hope my faux pas of being off topic can be forgiven.
    https://www.texastribune.org/2019/07/11/el-pasos-backlogged-immigration-court-halts-assistance-asylum-seekers/

    You could say this is a “policy uncertainty”—but even I would have to admit that’s a stretch as it relates to economics. Since white people who employ illegals are not being punished, I fail to see how it effects their labor costs.

    Reply
    1. pgl

      “El Paso’s backlogged immigration court recently halted programs designed to aid asylum seekers as they navigate a complicated legal system. “The confusion in the courtroom is palpable,” says one advocate.”

      Most AGs would find this appalling. But then Bob Barr is a loyal soldier to Herr Trump so the Constitution be damned.

      Reply
  8. The Rage

    Ah, yes, the Agbust. The event that imo(with the Comey letter taking its bow, especially with Black voters) created the Trump Presidency. Prices dropping 50% busted the bubble, created a recession in agriculture which took non-farm GDP from 2.75% down to 1.5% that year.

    Reply
  9. pgl

    https://www.dhs.gov/sites/default/files/publications/18_1214_PLCY_pops-est-report.pdf

    “DHS estimates that 12.0 million illegal aliens were living in the United States in January 2015, compared to 11.5 million in January 2014 and 11.6 million in January 2010.”

    When I read that the unauthorized immigrant population (I refuse to use racially charged words like illegal aliens) has surpassed 11 million, I am reminded that Hitler had estimated that there were 11 million Jews in Europe when he took power. His goal was to rid Europe of all of them. Alas – he got over half way there before the Allies ended his insane regime.

    Fast forward to the U.S. in 2019.

    https://www.usatoday.com/story/news/nation/2019/07/11/ice-raids-round-up-immigrants-deportation-sunday-nyt-reports/1701549001/

    “Immigration advocates brace for ICE roundups across country: ‘The goal is to terrorize’”
    Trump claims ICE will round up millions. I doubt ICE will be THAT successful in carrying out Trump’s racist insanity. But this evil agenda needs to be stopped.

    Reply
    1. dilbert dogbert

      As usual government is the problem not the solution.
      It will be interesting how many US citizens will be rounded up and deported.

      Reply
      1. Moses Herzog

        At this point I’m more worried about the humanitarian disasters already started and in the making:

        —parents who can’t find their children
        —children not being fed, clothed, bathed
        —children going long periods of time without any real/healthy socialization
        —children learning base survival behaviors at extremely young ages
        —children in their most formative years seeding a deep hatred for the US. Government (“home grown” terrorism—Hispanic version of a Timothy McVeigh)
        — U.S. Citizens being “normalized” to seeing fellow citizens emotionally, physically, sexually abused
        — “Normalization” to death camps, high potential for future concentration camps
        —“Privatization” of death camps—providing “profit motive” to abusing and torturing inmates (similar to what we have seen in Oklahoma and Arizona in privately run federal prisons).
        —Judges and lawyers working at swelling up the immigrant processing problem to justify their own “utility” in the system.

        https://crooksandliars.com/heather/rachel-maddow-exposing-private-prison-indu

        http://inthesetimes.com/article/6084/corporate_con_game/

        On and on and on and on and on………

        Reply
  10. pgl

    The Trump excuse makers want to change the subject from the impact of the trade war on soybean prices which is very evident with the 2018 data Menzie noted a while back, Bruce Hall for example thinks the drop in soybean prices in 2014 was very unusual and evidence that Democrat White Houses are per se bad for farmers. Of course people who write insurance policies for farmers are not this incredibly stupid and hyperpartisan:

    https://www.air-worldwide.com/Publications/AIR-Currents/2015/A-Look-Back-at-the-2014-Price-Drop-and-What%E2%80%99s-Ahead-for-the-2015-Crop-Season/

    “In 2014, the market saw price drops for corn and soybeans following record-breaking yields.”

    Gee – they failed to blame Obama for record-breaking production. Socialists! But there is more:

    “Was the 2014 price drop unique? No. In fact, the price drops from projected to harvest price in 2014 (27% for corn and 18% for soybeans) were very similar to those in 2004 (28% for corn, 22% for soybeans) and in 2008 (24% for corn, 23% for soybeans) as we can see in Figure 1.”

    Bruce Hall will likely object to how they drew figure 1 as it was both honest and informative. Now Bruce does the right way – how Donald Trump instructs him to spin things. Oh well – glad the authors have their private sector jobs as they will never get a position with this White House!

    Reply

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