The Bottom Line: Reverse and Fast Forward

August 23, 2013 09:46 PM
 
Moe Russell column

In July, Russell Consulting Group held our 15th annual summer conference. To give perspective on where we’ve been and what might be coming, we took a look back 15 years to 1998 and ahead 15 years to 2028.

Below is a list of interest rates and commodity prices and how they’ve changed. I’m especially focused on interest rates because there’s no way they will stick around at rock bottom levels—and they’ll likely revert to 1998 levels or higher. Since 1962, 10-year Treasury bills have averaged 6.61%, and that’s where they might level out in the next five years.

When it comes to commodity prices for grain, livestock and other key commodities, I’m doubtful that the annual increases will continue. In fact, they might turn negative for grain, gold and oil.

I am optimistic about the future of the animal protein business, including the big three—cattle, hogs and poultry. The percent annual increases might not equal the past 15 years, but I think they will be positive.

Keep in mind there are four primary drivers of change: resources, technology, demographics and public policy.

In the not-so-distant future, technology will rad­i­cally change the way farmers do business. Ed Seifried, professor emeritus from Lafayette College in Easton, Pa., was one of the speakers at our summer conference. He indicated that about every 30 years, some new technology changes the world. Thirty years ago it was the micro­processor. Today, it is fracking, which could lead to America being energy independent. That would be extreme­ly positive for GDP growth, as well as production agriculture.

Technology will also improve machinery and equipment efficien­cies by allowing around-the-clock oper­ations. Think back to the construction industry in the 1960s when the inter­state highway system was being built. Equipment ran 20 hours a day in two 10-hour shifts. We will get to that point in production agriculture, at least for some.

Variable-rate technology (VRT) will rapidly increase from an estima­ted 6% of acres today to 60% in five years. We’ll see more unmanned aerial vehicles (UAV) used for crop scouting, tissue testing and rescue treatments. Three-dimensional printing and robotics will change everyday tasks.

We have an exciting future, but not without challenges. As Danny Klinefelter with Texas A&M Extension, defines in Production Ag Economics 101: "The function of a competitive market is to drive the economic return to the average producer to breakeven through supply and demand in both input and output markets. In equilibrium, the top ends are profitable and growing, the average are hanging in there and the bottom ends are losing money and exiting the indus­try. Business success and survival depend on continuous improvement at a pace necessary to stay in the front half of the pack."

Moe Russell is president of Russell Consulting Group in Panora, Iowa. He provides risk management advice to clients in 34 states and Canada. For more risk management tips, visit his website at www.russellconsultinggroup.net. To submit questions, call (877) 333-6135 or
e-mail thebottomline@farmjournal.com.

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