When leading industry economists like veteran Michael Boehlje, Purdue University, weigh in on ag's future, agriculture should listen.
For example, he says it should come as no surprise that shortages and heavy global demand for ag products are combining to increase commodity prices. With recent corn and soybean market highs, who could argue with that?
However, much like other economists, Boehlje predicts that higher prices may not necessarily translate into more money to your bottom line.
“Right now we're seeing unique circumstances in the world of agriculture,” he says.
Boehlje says the U.S. is seeing a growing demand for ag products in two major areas:
Domestic, because of biofuels
Abroad, because of growing economies in India and China
“Combine that with a weaker dollar and it means that right now commodity prices are up and driving increasing production,” he says.
But the rub, Boehlje points out, is that “while producers are seeing their commodities bring higher prices, input costs are increasing, as well. In fact, land rents are up anywhere from 15% to 20% and seed and fertilizer costs are up 15-20% or more.”
At the same time, consumer inflation, the prices of basic essentials such as food, gasoline and health insurance, rose by 4.1% last year, the highest rate since 1990.
The U.S. Bureau of Labor reports that last year the price of eggs went up 29.2%, health insurance up 10.1%, gasoline up 8.2%, fuel oil up 7.4% and college tuition up 6.2%. Weekly earnings, however, were only up 0.9%.
You'd think those higher prices and more global demand would make farming a safer, more secure business. Don't bet on it.
BOEHLJE ARGUES that it also makes farming more challenging every year because we're in such a competitive era of “better, faster, cheaper,” and agriculture has to respond. Here's his list of top management practices that you need to heed:
- Adapt quickly to new technologies.
- Develop standard operating procedures to systematically get the work done.
- Use alliances with fellow farmers, especially when it comes to buying inputs.
- Work with buyers and suppliers as partners in the supply chain.
- Capture economies of size.
- Effectively use debt and equity.
- Utilize automation and information technology.
- Focus on product quality and buyer expectations.
I always appreciate it when someone of Boehlje's stature gazes into the future and reminds us of how to look at tomorrow's agriculture today.