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Words of Wisdom

April 26, 2014
Agriculture
  
 
 
This is the year to challenge traditional thinking and be open to fresh ideas. At recent meetings, industry experts shared nuggets of wisdom to delve into the dynamics of the farm economy. Roll around these thoughts when you’re in the tractor cab this spring. —Ed Clark  

At $4.50 corn, life isn’t as much fun as it used to be, but if you own your land, you’re doing just fine. The greatest risk to producers, as margins tighten, is land rents that will take time to adjust. I don’t see a significant decline in land values, but marginal land could decline by as much as 30% in some cases. The land market will fix itself. —Carl Casale, CHS

The world is getting smaller and smaller. Soybeans and soybean meal have been imported into the U.S. We expect China to become a larger corn buyer from the U.S., but not as predictable as soybeans. But it’s more than China. One of our three major customers is in Africa.—Matt Jansen, ADM

We have access to fairly cheap energy compared to Argentina. That’s a major cost advantage. The commodities market will become more complex, more competitive and more volatile.—Warren Feather, Cargill

Your brand is reputational capital. Producers have a stake in the image they present to their customers. One reason to develop a positive brand: Businesses talk to other businesses about customers. It’s in your best interest to be highly regarded by suppliers. Taking time to create the right image for your operation can help you get the best prices on inputs.—Brett Oelke, University of Minnesota

One major macro impact on agriculture has been energy prices, but a disconnect is coming. Expect the correlation between energy prices and agricultural prices to evaporate. The rapid growth in shale oil production and related natural gas has spurred energy production 40% higher than 2006. This means the likelihood of more fertilizer plants.—Bluford Putnam, CME Group

Invest in operational excellence. It’s not enough just to be the low-cost producer in your local area, state or even comparing yourself with like producers in the U.S. Strive to be the lowest cost producer in the world. Total global acreage of principal crops has increased by 147 million acres in seven years. It’s not true that no more farmland is being created. Think how you can lower production costs one-half cent per bushel per day.  —Mike Boehlje, Purdue University

We are in the seventh and eighth innings of the current super cycle for crops, but the third or fourth inning for livestock. Agricultural cycles operate on a six-year rule. The farm crisis in the 1980s lasted from 1981 to 1987; the most recent comeback has lasted from 2007 to 2013 and is showing signs that it is late in the cycle. I advise farmers to have one year’s worth of debt service requirement in the bank, in cash. —Dave Kohl, professor emeritus, Virginia Tech

The No. 1 job for crop producers in 2014 is to defend their balance sheet. That means employing price protection strategies—the combination of options with cash sales—that protect against prices dipping sharply. It’s a mistake to think prices can’t drop below the cost of production. Chicago commodity traders don’t care what your breakeven is. Good marketing is really boring, but it works.—Dave Fogel, Advance Trading

Even though grain stock levels have increased, they are far lower than past eras. This makes them more vulnerable to unfavorable weather on a global basis.—Philippe de Lapérouse, HighQuest Partners
 

 

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FEATURED IN: Farm Journal - Late Spring 2014
RELATED TOPICS: Farm Journal, Economy

 
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