This past fall and winter I participated in a Web cast series for producers facilitated by the Minnesota Farm Business Management instructors and supported by many local banks, Farm Credit associations and agribusiness groups. I presented five one-hour Web casts, spaced out over five months. Each Web cast incorporated a question-answer session and pre- and post-webcast individual assignments and group work to facilitate networking at the various sites.
One producer shared his situation that illustrated the volatility of the times economically on farm and ranch businesses. His business is a combination of corn, beans, wheat, hogs and beef. This past year, his accrual-adjusted net profits were approximately $350,000 after deciding to leave the hog barns vacant because of the short-term economics of this industry. This year, given the input costs and $9.50 beans, $3.50 corn and $54 hogs with modestly priced beef, revenue expectations in his average case projected scenario were $88,000. However, a 10% reduction in commodity prices reduces projected net income to negative $80,000. If prices decrease by 10% and cost is increased by 10%, net farm income declines to negative $180,000.
This example shows that rags to riches can occur very quickly in this volatile economic environment with a surprise around every corner!
Watch for first quarter U.S. GDP figures. If GDP is greater than -5%, this may be a positive indication. If less than -7%, then batten down the hatches!
On Friday, I played basketball with a couple of professional players who play in Japan and Europe. They indicated those economies are really struggling. There are more tent cities and a larger divide between the rich and poor than in the past. The players’ contracts are getting renegotiated lower by major sponsors.
They were surprised by all the shopping mall traffic in the U.S. Is it possible people are living off credit cards and unemployment benefits? Only time will tell.
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 [email protected].