Summit Message: Tough Times Breed Opportunities

This Business of Farming

While the temps outside dropped, the discussion inside was just heating up

Published on: January 16, 2014

The Farm Futures Business Summit went off as planned in St. Louis last week, despite subzero blizzard conditions that crippled most of the Midwest. Talk about hearty souls! Those who made it to St. Louis heard lively debates over cash rents, production costs and big picture global trends that move (or depress) local prices.

It might have been cold outside, but the conversations inside were surprisingly upbeat.

One theme we heard repeated often: Opportunities arise when times get tough, and it looks like we're headed that direction, at least for the foreseeable future.

Even so, most of the farmers we talked to in St. Louis were cautiously optimistic - saying, in effect, "bring it on." These are savvy operators, so there was little to flinch about when University of Minnesota Ag economist Bob Craven told his breakout audience, "the good get better and the bad get worse, and your lender knows this," in terms of farm financial and profit performance.

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Emerging nations – Brazil, Russia, India and China, as well as South Africa, Korea, Indonesia, Mexico and Turkey --have been "the engine for growth in our great commodity supercycle," says David Kohl, a Virginia Tech ag economist and long-time speaker at the summit. "Now their growth is moderating and as that growth moderates to 5% or less, we're starting to see softening of commodity prices."

Kohl believes you should map out various price and cost cash flow scenarios now. "Then, it's critical to have a very systematic risk management program and execute on that program," he adds. "These emerging markets will create volatility; volatility creates opportunity if you have a system to manage it."

That's a bit easier said than done. Kohl says emotions and behaviors rule 80% of economics. When you think about it, he's right. Let's start with some of the obvious ones. Greed may make you wait to sell at a profit because you're convinced grain prices will go higher. Then fear causes you to sell too quickly when prices start falling.  

Gregory Duerksen, President of Kincannon & Reed, a global agribusiness search firm, says the challenge for the farmer as CEO is to assemble the talent team needed for success in today’s increasingly complex and risky environment.

"The very nature of commodity crop farming is changing dramatically, so the talent we seek today has characteristics quite different than a generation or even a decade ago," he says. "Today’s farmer must think and act like a modern CEO: nurture a superior and focused work ethic; have both a strategic and tactical perspective; develop a keen self-awareness; become both clever and wise; and be a strategic doer while simultaneously leading others.”

Michael Swanson, senior vice president and economist at Wells Fargo, urged farmers to challenge common assumptions about who controls what in agriculture.

"USDA is now an afterthought in your world," he notes. "EPA controls water regulations, air emissions, ethanol policy, chemical usage – they're way more important to your net worth than USDA ever will be."

Both Swanson and Kohl say China will continue to have an increasing impact on U.S. agriculture. China and Hong Kong have grown from $2.6 billion in Ag trade with the U.S. in 2007 to $22 billion in 2012. Good news, right? Maybe. 

"As a trade partner China is going to become like Wal-Mart – very demanding if you are a supplier," says Swanson. "They'll have a lot of control over your life."

Kohl says China's new leader, President Xi Jinping, is very westernized and was pivotal in getting the Chinese to buy Smithfield Foods last year. Smithfield is the world's largest pork producer, based in Virginia.

"China has a split, have-, have-not economy and that creates tension," says Kohl. "They're going around the world securing assets to provide a safe, abundant food supply. They bought Smithfield for its brand and food safety protocol and they have their eye on other industries.

"As China grows, so grows Rural America."