Speaker says period of high commodity prices was aberration
WILLMAR, Minn. — The next 45 days could prove to be interesting as farmers secure operating loans for the 2017 planting season.
Given the current low commodity prices — which followed unprecedented high prices and increased purchases of farmland and machinery that over-extended some farm budgets — a number of farmers may walk away empty-handed this spring.
In a four-hour presentation Wednesday in Willmar, nationally known ag educator and speaker David Kohl predicted some farmers could be rejected by lenders if they have not made adjustments to business plans to reflect the existing ag economy.
It's just one of the trends in the ag economy Kohl discussed. "And, boy, are there going to be some exciting trends," said Kohl, professor emeritus of agricultural finance and small business management and entrepreneurship at Virginia Tech. Kohl holds a master's and a Ph.D. in agricultural economics.
"We're in an economic reset," Kohl told farmers and students in the audience and educators from the Ridgewater College Farm Business Management program that sponsored the event.
The high prices of U.S. commodities between 2004 and 2008 happened, in part, because of the rapid growth of other countries, including China. "It was an unusual time in agriculture," he said. "It was an aberration."
Kohl said farmers should not be paralyzed by inaction while waiting for those high prices to return, because they likely will not.
Kohl said farmers need to do what they can to tweak business plans and on-the-farm practices to stay in business, but they also need to look at the big picture and watch global trends that can affect the bottom line of local farmers.
"Keep an eye on international trade," Kohl said, predicting that a disruption in the balance of trade between the U.S. and its trading partners, such as Mexico, would have a powerful impact on ag markets.
"We are one tweet away from a dramatic change in our farm businesses," Kohl said, referring to President Donald Trump's frequent messages on Twitter.
Having positive international trade agreements is "critical to the health of American agriculture," Kohl said, adding that leaving the Trans-Pacific Partnership on the table could create a void and that China could take America's place in that market.
With the departure of the United Kingdom from the European Union underway and a growing trend for nationalism over globalism, Kohl advised the participants to watch upcoming elections in Germany and France for signs about the future of European Union and future impacts to the U.S. dollar and ag market.
The advantage the U.S. would still have over China is "soil health," which he called a "megatrend" in the ag economy. Kohl said about a quarter of China's soil is toxic and that healthy soil results in healthy plants, healthy animals and healthy people.
"You watch, soil health will be a critical issue," he said.
Kohl said the best defense against uncertain international trade actions is to have liquid assets and plan for unintended consequences.
Other potential changes expected in taxation, immigration and banking regulations under the Trump administration will also play a role in the ag economy, Kohl said, as will the direction provided by Trump's pick for Ag Secretary, Sonny Perdue.
"Immigration is your big issue," Kohl said. "It's going to affect your farm."
Consumers will also have a bigger say in agriculture through their purchases of organic foods or other products without use of GMO technology, and farmers will need to respond, Kohl said.
Kohl said farmers need to have written goals for their farm and stay focused on those goals to succeed.
He said about one-third of today's farmers are making proactive adjustments with their business management plans and keeping losses at a minimum or "eeking out a profit."
Another third are "tweeners" with some making adjustments and others too afraid to talk about the "tough times."
The third category he called the "zombies," who have used up their equity and are waiting for perfect weather and $6-a-bushel corn to return them to prosperity. The zombies, he said, may not be farming in the near future unless they make changes.
But like any cyclical event, that creates new opportunities for others, he said.