Mid-year ag review: Profits, millennials, land values and ag lending

Wow! It is hard to believe that 2016 is almost halfway through! It certainly seems that time passes more quickly the older one grows. As a type of review, let’s examine some of the points and perspectives emerging across agriculture from the first six months of 2016.

Widening profit gap

Right now, a proactive producer is strategically adjusting business models with a focus on reducing fixed and variable costs in order to minimize losses and perhaps, find a small profit. Other producers are focused on the hope that bad weather in another major production area will boost suppressed commodity prices. Regardless, the gap of profitability in farms will continue to widen, especially if a weather event does not occur to the point where prices are affected.

Millennials in agriculture

Whether it is producers, lenders or agribusinesses, everyone is experiencing an increase in the number of millennials, individuals 18 to 34 years of age, in the workforce. For lenders, many of the entering generation are from non-farm backgrounds. Additionally, there will be an increase in the number of female agricultural lenders. Just as many millennials were attracted to agriculture during the great commodity super cycle, some young people are now exiting the industry for greener economic pastures elsewhere. However, those remaining are engaged in lifelong learning, ready to make a difference and become the leaders in the years 2020 to 2040.

Land value microcosm

Today, air is seeping from the agricultural land asset bubble. However, this time it is a microcosm. More than others, some areas continue to see significant adjustment depending upon location, quality of land, competitive environment, diversification of income, and of course, development. Next year, 2017, could be the year of reckoning for many if economic relief does not come, at least in some form.

Lending scrutiny

Your agricultural lender is under much more regulatory scrutiny and stress due to the U.S. legislation, Dodd-Frank Act and just the overall increased regulation. More financial documentation and verification will be required even for smaller lines of credit. Most lenders indicate that producer requests for the refinancing of operating loans and losses to term debt are extremely prevalent. Other refinancing requests are due to the increased need for financial liquidity or to financially liquefy one’s balance sheet. As losses mount, lenders point out that some producers continue to burn through working capital, and in some cases, equity, like rocket fuel.

R&R

More producers are attending conferences to gain a different perspective or approach, along with networking with other lifelong learners. Conferences are a good way to spend some rest and relaxation time off the farm. However, as the days become longer, if a conference trip is not possible, some good old “r & r” will help re-energize your perspective.

As we look back over the year thus far, agriculture continues to face various challenges in many different areas. From regulations to input costs, and generational transition to strategic business plans, producers must continue to address the important issues, not just the urgent. What will happen in the remaining months of the 2016? Well, only time will tell but as the old adage says, “Hope for the best and plan for the worst.” 

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