November 8, 2006
What issues will be on farm and ranch managers’ radar screens for 2007?
First and foremost will be energy and inputs that are impacted by oil and natural gas. Expect wide swings in these costs created by weather, supply and demand aspects of the energy equation, and geopolitical risk. It will be a bumpy road in energy costs until alternative energy is developed and/or the global economy slows down.
Watch the health of the U.S. economy. Canada’s biggest agricultural and general economy trading partner is experiencing an economic slowdown. The softening of the housing market, higher interest rates and energy costs are taking a bite out of the U.S. consumer’s pocketbook. How deep it becomes will depend on converging economic and political forces.
The economic world is flattening out with thinner margins, which appears to be an irreversible trend. Expect to continue to see a widening gap between those producers who do well economically and those who fall behind. This will have a direct relationship to best management practices relating to marketing, finance, risk management and sound location or natural resource base.
Consumers will continue to drive the business model. Consumer demand for organic, natural and local food and fiber, along with traceability systems will be a key driver of success for a producer’s bottom line. Profits of producers will be affected by the demands of quality food and fiber seeking customers.
Farms and ranches that adopt and integrate technology will have a systems approach to management, which will equate to larger increases in their bottom line. At the other end of the spectrum, traditional practices and simplicity will be the mode for profits and balanced lifestyle for many mid-sized and smaller farms.
Farm real estate values will be influenced more by economics beyond the farm gate. Profits from the energy sector, wealth built in technology and business sectors, foreign investment in rural areas, and the desire to reside or recreate outside urban areas will drive farm real estate balance sheet values.
Agriculture will continue to be driven by political forces. A careful eye on the U.S. Farm Bill negotiations, the forming of global bloc economies in North America, Europe and Asia because of the sluggish WTO negotiations and trade sanctions will be large blips on the farm and ranch managers’ radar screen.
Of course, the weather here and abroad along with global competition will create opportunity as well as trauma for some, but will require positioning to capture the profits and mitigate the risk.
The Road Warrior of Agriculture
My e-mail address is: [email protected]
Editors' note: Dave Kohl, The Corn and 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.
To see Dave Kohl's previous road warrior adventures type Dave Kohl in the Search blank at the top of the page.
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