The other day in my travels, I was sharing a thought with a group that it feels a lot like the late 1970s all over again. We are not going retro on you with disco, and “We are Family” by Sister Sledge, but this era has some of the same economic characteristics.
Yes, land is booming in appreciation in many areas of North America, spurred by alternative energy, low value of the dollar and an increasing standard of living in emerging countries. Some agrilenders are aggressive in lending standards designed to increase market share, with little attention to cash flow and profits. As with the 1970s, this era is full of millionaires on paper who have never earned a dollar profit wise but have the urge to increase value of assets based upon recent sales in the area. Commodity prices are high for most enterprises but there may be fools gold in perspectives because higher input cost may result in margins similar to eras of the past.
Here are some million-dollar questions for the short-term to consider:
- Will the housing crisis and credit crunch spill over into a recession in the U.S. and globally causing a decrease demand for food, fiber and fuel?
- Will the housing crisis and credit crunch expand to Europe, Asia and other regions of the world?
- Will the dollar rise in value reducing the demand for export agricultural products?
This is a period when it pays to plan to put more stretch in your budgeting numbers and build a backup reserve for downside risk and opportunity. This is also a time to objectively plan and not be caught in emotional decision-making.
Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at email@example.com.