Let's go out on a limb and make some predictions for 2009 - for both the agricultural and general economy. We will mix in some trends and general observations, as well.

  • THE FIRST SIX months of 2009 will see a deepening recession with high unemployment and job losses or cutbacks in hours. Do not be fooled by unemployment rates because the reported figures do not include discouraged or displaced workers. What is reported can be 2-3% lower than the actual level of unemployment.

  • LAND VALUES WILL hit the wall in many regions as producers keep profits and cash in reserve. This does not mean a major decline in land value will occur, but expect a slowdown in land appreciation, more no-sales and slower turnover of property.

  • PRODUCERS AND agribusiness with fertilizer or feed inventory will be in a standoff. With deflation occurring, farmers and ranchers are going to expect discounts. However, agribusinesses that purchased higher priced fertilizer and feed inventory will have to maintain some margin. Unless commodity prices rebound, intense negotiations can and will occur.

  • COULD COMMODITY PRICES rebound? Yes. Less planting in the southern hemisphere, Mother Nature and the alternative energy sector could play big roles in commodity prices. Expect volatility, which will require a risk management plan along with a diversification strategy.

  • LOCAL, NATURAL AND organic products continue to increase in market share. Any media, special interest group or food, fiber or fuel scare or shortage could accelerate this trend.

  • TECHNOLOGY'S IMPACT ON economics and production will continue to accelerate and peak in the next decades, particularly in the North American region where producers have the systems and management to implement high-tech solutions.

  • MORE LEGISLATION AND dialogue relating to regulation of agriculture, similar to Proposition No. 2 in California and the proposed animal emissions tax, will emerge in 2009 as Americans continue to have a disconnect with the agricultural industry.

  • CHINA AND THE Asian region's economic health will be a key to commodity and oil prices. Expect extreme volatility as emotions and psychology trump logic and reason by worldwide traders.

  • CASH, LIQUIDITY, STRONG financials and profits will be prerequisites to doing business and borrowing money. Easy money is a thing of the past.

ARE YOU UPSIDE DOWN?

In addressing agrilenders and agribusiness management professionals, informal discussions led to a conclusion that high input costs combined with the rapid decline of commodity prices is now resulting in a potential for grain producers to be upside down on the income statement for the first time in many years. This is a classic liquidity lag stage one situation.

Farm management staff and Extension personnel around the country say that grain producers who did not forward contract could lose up to $200/acre. Of course, this will depend on rental and ownership cost, cost of inputs, drying and weather conditions to grow the crop. As farms become larger, there is a potential to wipe a half a million dollars or more off the balance sheet very quickly.

Moving forward, one must carefully analyze rental arrangements and land purchases. Economically, variables can go south very quickly, analogous to the general economy.

Second, some individuals are utilizing minimal fertilizer maintenance for 2009 to gauge the economy; for others, it is business as usual. Conducting cash flow scenarios - perhaps as many as five different scenarios - with probabilities of each scenario materializing can help in prudent decision-making.

Finally, a group of young producers in one area of the county has decided to rent their rental and owned land out, sit on the sidelines and live off the profits garnished in recent years. Tough choices are coming in 2009 and beyond.

Dave Kohl, PhD, Corn & Soybean Digest trends editor, is professor emeritus at Virginia Tech. He' published four books and over 500 articles on financial and business topics. You can reach him at sullylab@vt.edu.