Ag, infrastructure and the ‘S-word’ hot topics

By Sarah Binder

CEDAR RAPIDS — We’re doing better than most.

Speakers at the Corridor Business Journal’s seventh annual Economic Forecast Luncheon predicted Iowa’s economy will remain unchanged or slightly improve in 2013 due to low unemployment rates and a stable agriculture economy, but nationally, things could be more sluggish. The event took place Jan. 9 at the Cedar Rapids Marriott. (Check out more photos from the luncheon on our events page.)

“It feels like we’re driving a car with one foot on the accelerator and one foot on the brake,” said David Miller, director of research and commodity services and chief economist of the Iowa Farm Bureau Federation and the luncheon’s keynote speaker.

The ‘S-word’

Kelly Ortberg, who was appointed president of Rockwell Collins in September, acknowledged that Rockwell, the Corridor’s second-largest employer, faces challenges in the year ahead.

Its greatest challenge is sequestration, which refers to across-the-board federal budget cuts that could delay or eliminate defense contracts.

“Sequestration is a bad word, I’ve learned that this past year,” he said. “It’s probably the biggest single issue we have right now at Rockwell Collins.”

Government defense spending, which represents around 50 percent of Rockwell’s business, stands to be impacted by automatic cuts if Congress cannot find a permanent solution to the fiscal cliff dilemma. Sequestration was expected to go into effect this month, but has been delayed until March.

“What sequestration is is essentially a poison pill,” Mr. Ortberg said. “If they don’t come to an agreement, they’ll require that there be automatic sequestering. Basically, what that means — think of running your business and being halfway through your fiscal year, and you don’t have an approved budget. What that has manifested itself as, is most of our military customers are being very, very cautious right now.”

In September, Rockwell announced between 350-1,000 employees in the Corridor will be laid off because of these cuts.

Mr. Ortberg predicted last week the government side of the business would be down 10 percent in 2013 and total revenues would be down 1-3 percent.

The company continues to invest in research and development efforts. About 22 percent of revenues for this year will be directed to new research and such long-term projects could take nearly a decade to see return on investment.

“Research and development is the lifeblood of our company,” he said.

Record profits, costs in agriculture

Iowa Farm Bureau’s economic expert, Mr. Miller, predicted in his speech that 2013 will set records for net farm and gross farm income, as well as land prices in the state. While the historic drought hurt crop production, it pushed prices up nearly 35 percent. Increasing demand for food and fuel, especially from countries with ballooning middle classes like China and India, will continue to push land prices up, he said.

The bad news is, 2013 is also expected to be a record year for agriculture expenses.

“There’s a lot of money walking through their hands, but not a lot to keep,” he said.

Heidi Vittetoe, general manager of JW Vittetoe Pork Ltd., agreed that high corn and feed prices are having a “staggering” effect on the livestock industry.

She said another factor impacting her business is “propaganda” around buzzwords like organic, sustainable, and green.

“There’s something ironic about all of the nicer sounding names, like ‘organic, local, sustainable, green,’ whatever the words are; about those systems typically being low-input, more erosive to the soil,” she said. “From a cost of production standpoint, the methods that we use are superior across the entire globe.”

Ms. Vittetoe added that the desire for low food prices could drive the market to other countries that have fewer regulations on production, which could ultimately impact the safety of the food supply.

Governmental gripes

Nearly every panelist expressed disdain for the impacts of government policies on their businesses.

One audience member asked how decreased federal funding for maintaining the nation’s highway system would impact freight transportation.

“It’s a matter of time with the interstates,” said Michael Gerdin, chairman and CEO of Heartland Express. “I know we got to a very grim point about three or four years ago between Cedar Rapids and Iowa City with the shape that (Interstate) 380 was in. It took a lot to get that thing fixed, which we all enjoy today. That’s just a microcosm of what the transportation structure is around the United States.”

Heartland Express only hires safe drivers, but if the highway infrastructure is unsafe, “it will lead to gridlock,” he said.

“The infrastructure runs everything,” he said.

Bruce Altorfer, president of Altorfer Inc., said after talks with the Iowa Department of Transportation, he expects funding for maintenance on Iowa roads to only decrease through 2014.

Mr. Altorfer also commented on the impact of government on the workforce. Altorfer Inc. operates in three states: Iowa, Illinois and Missouri. While 40 percent of its workforce is in Illinois, those workers represent nearly two-thirds of the company’s workers’ compensation claims, he said.

“It’s interesting to always compare the quality of the labor force in each state,” Mr. Altorfer said.

Iowa’s workforce consistently exhibits the best work ethic and fewest worker compensation claims of the three locations, which he said surprises him, since the states are all Midwestern and the workers share similar demographics, he said.

“The only thing I can pinpoint is in Illinois, they have a broken state government,” Mr. Altorfer said. “I think that translates itself into the attitudes of people…it’s a perpetual motion machine of despair and cynicism that we struggle to combat every day.”

Airport announcements

Tim Bradshaw, director of the Eastern Iowa Airport, shared some news that elicited applause from the audience. He said a possible merger between US Airways and American Airlines could bring direct flights to Philadelphia and Charlotte, N.C., and added the airport is working to secure flights to Washington D.C. and New York.

Meanwhile, in the airport’s 25th year, terminal improvements are ongoing and the airport is adding new technologies, such as smartphone check-in service.