Lindsay and I spent part of the past week in Louisville for the National Farm Machinery Show, where, quite honestly, I expected some measure of doom and gloom. Given the challenges facing industrial concerns and the manufacturing segment in specific, I came to the Kentucky Fair & Expo Center prepared to face an onslaught of pessimism and complaint. I couldn’t have been more wrong. The phrase I heard in almost every corner, and from almost every person I interviewed was “cautious optimism.”
As I’ve written before, I think people in agriculture are by and large optimistic people. I often joke that farmers look at a situation two ways: either “it could always be worse,” or “it’ll be better next year.” While generally said tongue firmly in cheek, there is no small amount of truth in that statement, as I learned at the NFMS. From farmers to dealers, from equipment manufacturers to other members of the agricultural media, people were looking forward to better days just around the bend.
To what do we owe the optimistic bent with which farmers came to learn about the latest and greatest in agricultural equipment technology? I firmly believe the basic attitude of folks in rural America is positive, first off. When you live and work on the, land, when you tend the crops and reap the bountiful harvest of nature, when you raise and enjoy productive livestock, you have a lot to be happy about. Certainly there are innumerable challenges, heartaches, and discomforts incumbent on those who are responsible for feeding, fueling, and clothing the world, but the fruits of agricultural labor are, so to speak, extremely rewarding.
Warm and fuzzy feelings aside, does there exist any real evidence with which to back up this mood of anticipation? There may be. Data from the United States Department of Agriculture suggests that farm income should be acceptable in 2009. Even with the economic bearishness pervading Wall Street and Washington, the agriculture sector is still doing better than average. The Economic Research service reports 2009 Net Farm Income is forecast to be $71.2 billion in 2009, down $18.1 billion (20 percent) from the preliminary estimate of $89.3 billion for 2008. Still, $71.2 billion would be 9 percent above the average of $65 billion earned in the previous 10-years.
In other words, we’re still doing much better than average, all things considered. Furthermore, when looking at the long-term projections, USDA economists suggest that although net farm income initially declines from the highs of 2007 and 2008, it remains historically strong and rebounds to near-record levels in the latter part of the projections. So, for the next decade, prospects are reasonable for a healthy bottom line in the next decade.
I had an interesting conversation with some pork producers at the Ohio Pork Congress last week about this very subject, particularly what producers thought about the “fallout” of producers from the industry in this economy. One gentleman put it to me straight that while certainly some folks would decide to retire or sell the family farm, we won’t see the mass exodus of producers we saw in the 90’s. Producers have by and large “learned their lesson,” as another put it, both the lessons of the 90’s in the hog industry and the lessons of the 80’s in the rest of the industry. Balance sheets, according to experts we heard at a Farm Credit Services forum in Louisville, are much healthier in agriculture and rural America than they’ve perhaps ever been, and the debt-to-asset ration in our segment of the economy are exceptional for maintaining a successful cash flow and equity position.
Now, my glasses aren’t rose-colored, so I know that there will be winners and losers regardless of the economy, but I do have an expectation that there are a tremendous amount of opportunities ahead. Following the “boom” and “bust” cycles of American history, some of the biggest and best moneymaking opportunities came shortly after some of the worst fiscal bloodletting. Certainly those who waited to expand their operations in the Carter years were around to buy up their bankrupt neighbors a few years later.
In fact, expansion by acquisition may be one of the biggest opportunities of the next year or three according to some of my sources in the lending, finance, and real estate trades. Rather than investing in capital-intensive projects on your own current operation, perhaps preserving a strong cash position and waiting for a friend, neighbor, or partner to retire or cash in their chips may be a smarter strategy. On the other hand, interest rates and the cost of borrowing are as low as they’ve been in recent years, and so folks looking to acquire additional land, build additional facilities, or farm additional acres may find it advantageous to do so.
In the end, of course, the most optimistic among us are those who know where they are in their business, where they’d like to be in five years, and what strategy they’ll employ to get to that destination. Farming by the seat of your pants is no longer an option in this hyperactive global economy. Be it marketing strategy, financial strategy, growth strategy, or succession strategy, accurate assessments and future plans are a requisite for maintaining a successful operation today, in fact, more so now than at any point in our history.
To that end, I offer this suggestion: join me in Dayton March 2nd and 3rd for ABN Radio’s Marketing Seminar featuring Alan Brugler of Brugler Marketing & Management. Alan is our Chief Market Analyst, and his insights will make you a better marketer and a more profitable farmer. Details on registration are available at our website BuckeyeAg.com.
As I tell folks when I speak on this subject, my advice for the next two years is to keep your head up, your eyes open, your butt covered, and your banker happy. The first three may be easier to do than the fourth, but if you do the first three successfully, you and the banker might both be a lot happier in the end. Happy hunting, and enjoy the chase.