Sometimes as I travel around the country Willie Nelson’s song “On the Road Again” comes to mind. While driving my Hertz rental car and listening to Sirius radio, I have had a chance to survey the upper Midwest’s agricultural landscape and visit with over 2,000 producers in the past few weeks. Here are some observations that are top of mind.
It is Dry
Driving through the Upper Midwest and observing the landscape reminds me so much of the Southwest with its dry topsoil and foliage. One producer in Minnesota who owns and rents heavy clay soil indicated that recent land work finds dry soil down nearly 10 ft! With nearly 60% of the nation in moderate or extreme drought conditions, it will be important to closely watch precipitation and weather conditions in production belts in North America and around the world. Back-to-back droughts would create extremes in prices and be a paradigm shifter, particular for our livestock industry.
Land, Land, Land!
The farmland market reminds me of the stock market and the urban and suburban real estate markets of a decade ago. How bad is this heated market? I was speaking at an American Legion hall in western Minnesota to an overflow crowd at an AgStar Financial Services Outlook event. An older gentleman between 75 and 80 years of age saw all the cars in the parking lot and decided to attend, thinking he had missed an opportunity for a possible land sale! Many individuals, typically those between 50 and 60 years of age who are flush with cash, are really wrestling with the issue of buying land as an investment. It is important to remember that land appreciation of 20-30% annually is not sustainable in the long run. If you do purchase land, is it consistent with your goals? Make sure that working capital reserves are maintained for the eventual correction.
Taxes, Taxes, Taxes!
Agricultural producers are very concerned about the government's ineptness and tax increases. A tax accountant who shared the program with me indicated that most of us can plan for a 10% increase in 2013 taxes on our cash flow projections. Deferred taxes are a tsunami waiting to happen as some of the depreciation bonuses are adjusted or possibly eliminated, and estate tax minimums may be reduced. The bottom line is that the taxman will come, and agriculture will be in the bull's-eye. I will be back throughout the winter to give you an update of life on the road.
Editor’s note: Dave Kohl, Corn & 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 firstname.lastname@example.org.