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David Kohl shares timely advice for farmers

Holstein cows at feed bunk
DAIRY ADVICE: Economist David Kohl warned farmers to "get better before you get bigger" at the recent PDPW Business Conference. He said if milk prices jump, hold some money back so you can be prepared for unintended consequences.
The ag economist spoke March 15 at the 25th annual PDPW Business Conference.

I listened to Dr. David Kohl, professor emeritus in the Agricultural and Applied Economics Department at Virginia Tech, speak to a group of farmers and agribusiness professionals at a Professional Dairy Producers of Wisconsin Business Conference in Madison in 2004 or 2005. He was talking about all the "McMansions" that had been built in recent years, including around Madison, and the housing bubble that he thought would burst in the next two to three years. He explained it was similar to the farm crisis that hit agriculture in the early 1980s, when land values dropped by half, only he said it would be much worse for the economy because a lot more people own houses than farms.

That was the first of many times I heard Kohl speak, and the first time I had heard anything about the housing bubble. A few months later, I started hearing similar predictions from other economists. I read articles by economists who were saying similar before the housing crisis and the Great Recession hit in 2007. Since then, I have always been eager to hear what Kohl has to say. I always learn things from him about the economy that I didn't know — and how agriculture will likely be impacted. When Dr. Kohl speaks, people listen.

Words of wisdom
Kohl was a keynote speaker at the 25th annual PDPW Business Conference held March 15 at the Alliant Energy Center in Madison. He also shared his thoughts with smaller groups following his keynote address. Following are some of the words of wisdom that Kohl shared:

• Our parents and grandparents had to manage volatility. What we are going to have to do is manage volatility in the extreme.

• The world is going from globalism to nationalism, and it could hit agriculture. We need globalism. Thirty-nine percent of U.S. dairy exports are sold to Mexico.

• Keep your eye on Europe. Kohl said he is watching Brexit and the elections in France and the Netherlands. The big issue in Europe is immigration.

• Watch China. China is building up its military. Kohl said, "All we have to have is some military action in the South China Sea, and your milk prices will go down $3 a cwt."

• He predicted that Japan, which has the No. 3 economy in the world behind China and the U.S., will not be in the top 10 by 2030 because it is carrying a lot of debt and its population is old.

• Health care is very important for farmers because the No. 1 reason businesses file bankruptcy is because of medical bills. Kohl said farmers should know what their cost of production is per hundredweight, and they should know what their cost per hundredweight is for health care.

• Kohl predicts that with the Trump administration, the economy will heat up. He believes we will see higher annual growth than the 1% to 2% we experienced during the past decade, but with that will come higher inflation and higher interest rates.

• If unemployment stays under 5%, we are going to see an increase in interest rates. If copper prices increase, that means the economy is growing.

ECON EXPERT: Dr. David Kohl is a professor emeritus in the Agricultural and Applied Economics Department at Virginia Tech.

• Kohl also advised farmers to be cautious. Our economy has experienced 92 months (seven and a half years) of expansion, and 56 months is the average before the economy usually slips into another recession. He said Republican administrations often face recession.

• Whether the U.S. is in recession or growing will be very critical to farmers' bottom lines.

• He warned farmers to "get better before you get bigger," and if milk prices jump, hold some money back so you can be prepared for unintended consequences. Cash is king. In good years, you have to stash cash and resist spending it all. Farmers should keep one year of earnings in the bank.

• Kohl predicted we will see two terrorist attacks and three recessions in the next decade.

• Soil health will be one of the top megatrends in the next 10 years.

• He believes the consumer is going to splinter the marketplace. There will be a place for GMOs and a place for non-GMOs. Eighty-five percent of Americans are two generations removed from the farm. Farmers' political power is disappearing.

• By 2050, 70% of the world population will live in urban areas.

• Eighty percent of Americans don't have goals, and 16% don't write them down — only 4% write down their goals.

• Never forget, "the best crop you'll ever raise will be your children."





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