Recently I was part of a panel examining the future of agriculture and the economy at a school in Wisconsin. Sam Miller of M&I Bank, Carl Babler of First Capitol Ag, and I had some great dialogue with the group of lenders in attendance during the panel session. The following are some of the highlights.
- Sub-prime lending and tightening of credit will spill over into some of the prime real estate credits outstanding. The credit crunch is not only a U.S. challenge, but could possibly stretch across the globe. Similar to the dot-com bubble, speculation and easy credit with no money down, interest-only, and second home mortgages as a solution to household cash flow problems have resulted in financially over-extended households. This shakeout could stay with our economy for up to four years. It could trickle into the agricultural economy with tightening of credit standards, and softer land values in some sections of the country could result.
- Carl Babler made an excellent point when he said marketing decisions on the farm are not a committee decision. An individual must be assigned to do the marketing, with input from others.
- Lenders asked Carl Babler what reasonable line item cost one could expect for marketing expense. His range was 25-35¢/cwt of milk; 25-30¢/bu. for corn; and 30-35¢/bu. for soybeans. All panelists indicated usually not enough is spent in this area of the farm business model.
- Sam Miller asked the group of lenders if their customers are using marketing programs for marketing livestock and grains. Well over 85% raised their hands. Sam and I compared that to an earlier school when it was less than 10%. We can definitely see progress in this area.
- Profits are dropping dramatically at some ethanol plants. The early adopter reaped the profits in that industry.
- Fringe areas of farming will become popular as farmers seek locations without population issues, and technology allows crops to be grown in a wide variety of natural resource and climate conditions.
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 firstname.lastname@example.org.