Examining ag’s future mega trends
SPENCER – With the prices of 80 percent of all consumer goods affected by the price of oil, then watching the oil market will be essential to farming success.
That assessment was offered Tuesday by David Kohl, professor emeritus of agriculture and applied economics at Virginia Tech, as a featured speaker at the 2010 Northwest Iowa AG Outlook in Spencer.
“Through the years our leaders have been suckered in by cheap oil,” said Kohl, who is also president of AgriVisions LLC., of Blacksburg, Va. “Now those prices are getting higher and higher and we have not looked into alternative energies.”
The U.S. economy is dependent on those prices, he maintained. As business plans are made, the crude oil market must be studied to foresee what the future will hold.
Kohl foresees more jobs in the agricultural field being created; but there will also be more chances for failure.
On family farms, business, family and lifestyle goals need to be changed, he said. “One can not continue to run the farm as his father before him did. Farm managers must be innovative, resourceful and selective.
“Selling yourself and using people skills will be increasingly important.”
Farmers will also need to come up with an input cost strategy, recommending that 30 percent of revenues should go back into working capitol.
“Do not get yourself out on thin ice in these times,” Kohl warned. Cash is like oxygen.
Kohl sees additional changes occurring in agriculture in coming years.
- 70 percent of North American farm ground will change hands by 2025.
- Local, natural organics could be 20 percent of the consumer marketplace.
- Special interest groups will drive business models and have a huge impact on Agriculture.
- 80 percent of Americans are, or will be, two generations or more away from the farm and or ranch.
- Control of assets rather than ownership with new landlords.
- Water could replace oil as the limited resource.
- Women and minorities will become major decision makers.
“Strategically we need to think globally, but act and execute locally,” Kohl said.
Nationally, Kohl sees lenders still extending credit, but they are rationing it. Because of the changes in banking regulations, lenders are under extreme pressure and will be looking at an operation’s bottom line and cash flow.
Kohl said land, if properly managed, can give dividends and is a wealth accumulation, but to remember, “If it grows like a weed, it is a weed. Fast money is not good.
“Growth is the No. 1 reason why businesses fail.”
Then how does one get into position for success? Kohl said profit equals overhead plus cost plus liquidity plus margin squared.
“We can no longer put all of our profit into growth, one needs a profit plan,” Kohl said.
Kohl described prosperous farm businesses as:
- Superior financial management systems.
- Excellent time management skills, balancing work, family and play.
- Selective adoption of technology.
- Family partners, advisors and team players.
- Recognition of differences between $1,000, $10,000 and $100,000 decisions.
Contact Robyn Kruger by e-mail at firstname.lastname@example.org.
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