Innovation key to seizing ag opportunities
WILLMAR -- Agricultural producers can take advantage of rapid economic change, extreme volatility and opportunity, if they have the discipline to handle the situation, according to Dr. David Kohl, professor emeritus of ag and applied economics at Virginia Tech.
Kohl was the featured speaker Wednesday to a group of 250 farmers and agribusiness professionals gathered at the Kandi Entertainment Center in Willmar.
The annual event was sponsored by the Farm Business Management Program at Ridgewater College and focused on "New Economic Realities of American Agriculture."
"We are on an economic rollercoaster," Kohl said. "All this volatility is going to create opportunity."
Producers who capitalize on the opportunities will need to use "big-league" management skills and not be faint of heart, he added. Kohl likened the current economic environment to "Crazy" the old song by Patsy Cline, then joked that the Ridgewater ag students attending the conference probably didn't even know who the country singer was.
The extreme volatility -- in both costs and revenues in agriculture -- will tempt producers to make emotionally based decisions. Kohl urged producers to use their advisers, bankers and farm business professional to take the emotion out of key decisions.
About 300 producers have been working in just that: developing business plans, based on the current economic conditions, as part of a web-based seminar series put on by the farm business management program, according to Jim Molenaar, regional dean of the programs at Ridgewater. Part of the day's meetings included reviewing those plans with producers, he said.
Not that managing in these conditions will be easy, Kohl said. It's not something previous generations had to deal with.
"Your grandpa and grandma, your dad and mom never faced this in managing the business," Kohl said.
Kohl advises producers to have six months worth of income and 12 months if they are married. Producers should have working capital of at least 33 percent of their revenues this year. That level of liquidity can show an ag lender that the producer was disciplined enough to build his working capital in the good years to weather the bad years. Economists are predicting a bad year for farmers this year, as crop, livestock and dairy prices have dropped while costs have remained high. At the same time, lenders are becoming more conservative and rationing credit.
"You will have to make your self 'farm-creditable' and 'bankable,'" he said, by managing the good years against the bad and having a truly effective, and workable, business plan.
Producers will be presented with land-purchasing, business-expanding opportunities in this economy, Kohl said. He urged producers to make the opportunity pass a thorough "sniff test" by reviewing how the expansion would fit with the producers business, family and personal goals.