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Corn+Soybean Digest

Agricultural Risk Assessment

The other day a lender group in Duluth, MN, asked me to rank the risks in agriculture. While this list may not be comprehensive or in alignment with your area, it should provide some food for thought.

The four risks that would get a five-star high-profile rating are: weather, input costs, currency and food vs. fuel. One only has to examine the results of too much rain in the Grain Belt to see the influence on price and cost levels in the livestock industry.

Currency levels are having a dramatic impact on input cost. If the dollar was par to the euro, oil prices would be in the $70-80/barrell range, and gasoline and fuel would cost about $3.25/gal.

Food and fuel issues are a risk from a public and media perspective. This could shift markets very quickly should special interest or political activists shift influence.

Second tier risks are government policy and the domestic economy with a four-star rating. If the general economy experiences a deep recession like the 1970s and 1980s, it will eventually spread to agriculture on the income statement and balance sheet. Higher taxation and regulation is on the horizon after the next elections, which will shift paradigms in agriculture. Protectionism could be the ultimate risk here and abroad.

Finally, global markets and interest rates are three-star risks, which could elevate to four or five stars quickly. Two-thirds of our interest rates and economy are now impacted globally. The bottom line is that the U.S., and to some extent Canada, is interdependent with a global economy.

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.

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