WALDO, Ohio — The next decade of agriculture will require more management, innovation and cash, a nationally recognized farm economist told a group of producers and related industries Dec. 10 in Ohio’s Marion County.
“There’s going to be a lot of opportunity to prosper and there’s going to be a lot of opportunity to fail,” said David Kohl, professor emeritus of agricultural and applied economics at Virginia Tech.
Volatile and global
Kohl said the markets are entering a period of “volatility of the extreme,” where dramatic fluctuations are frequent, and global influence will be more prominent.
Kohl presented his three-prong risk management plan, which includes managing revenue, cost inputs and interest rates.
Although good management will be increasingly important, he said there are still times when money will be “left on the table, “because farmers cannot always gamble for the highest possible market conditions.
“If you’re destined to hit the peak, you’re destined to hit the valley,” he said.
New skills
Decisions will need to be more “innovative, resourceful and selective,” he said, and farmers will need to apply “people skills” if they want the best deals with their lawyers, brokers, employees and business partners.
Kohl predicted “cash will be king” the next 10 years, influencing farmers’ ability to get credit and make purchases to sustain and grow their operations.
Global influence
He said the United States is still a “young” world leader, with much to learn from other countries and their direction in the next few years.
Gross Domestic Product projections for 2009 show the Chinese economy growing 8 percent, followed by India at 7.3 percent, and Indonesia at 5.4 percent. The U.S. GDP is expected to finish at nearly 1 percent less than the beginning of the year.
One of the most important resources of the new decade will be oil, which Kohl said is linked to nearly 80 percent of all farm expenses. Showing a picture of oil millionaire and TV character Jed Clampett, Kohl said the price of oil will likely continue to be high, as political tensions continue in countries that control the majority of the world’s supply.
Land of opportunity
Perhaps one of the best investments will be land, although Kohl said the past year actually saw a 3.4 percent decrease in land values, the first decline in 21 years.
Over the past 100 years, 80 years have seen the value of the nation’s farmland appreciate, he said, making it a relatively good investment. Kohl said land is especially appealing during times of hardships, including wars, because it’s viewed as a dependable asset, providing food and fiber and a sense of security.
But acquiring land has to be done with care, he said, or it can turn into a bad investment.
He cautioned farmers to be good stewards of their inheritances, concluding “people who inherent major wealth, on average, go through it in 17 months.” Of the major lottery winners, he said about 74 percent will file bankruptcy in a five-year period.
His advice was to be cautious of immediate wealth and growth. His favorite saying: “If it grows too fast, it is a weed.”
Kohl also advised against falling in (emotional) love with land, borrowing beyond what can be returned and expecting unreasonable cash-flow.
Farm regulations could also impact land values, he said, as states like California ban certain kinds of caging practices, which impacts farmers’ ability to operate.
Moving forward
Kohl closed his presentation by reiterating what a prospering farm business will look like. The one prevailing theme was management — from the nickel-and-dime purchases, to those that cost hundreds of thousands of dollars.
He said farmers should “keep themselves rounded,” watching for economic trends and empowering their operations to have choices in the face of difficulty. Asia and China will continue to have an emerging world influence, he predicted, and countries like the United States will need to find ways to “scale through the noise,” to compete in a world market.
“We’re either going to pick ourselves up … or we’re going to move toward a European-type of economy,” he said.
“The world will go on, but I have to tell you, she will be a global world.”
