The world is gearing up for a new era of economic prosperity, but the paths that will get farmers to that place might surprise you, according to Jason Henderson, Purdue University Extension.
“Today is the day we need to think about your long-term future,” Henderson said. “How are you positioning yourself?”
He outlines six trends that could help producers grow their profitability in the years ahead.
1. Real-World GDP Growth
For the past decade, China has driven the agricultural economy forward. Yet that growth has slowed from 10% to 6.5%.
“It means for us in agriculture that we have to look at other emerging opportunities,” Henderson said. He notes India in particular will become an important market for U.S. farmers to serve. For example, though people commonly assume India poses beef market limitations because of religious preferences, the country has actually increased beef consumption every year for the past decade, according to Henderson.
China will remain an important player in global markets. “I think China is still going to buy and be a big consumer. It’s had a hiccup,” said Henderson, speaking at the 2016 Top Producer Seminar. “It’s dealing with debt, just like all the other countries across the globe have dealt with debt over the past 10 years. In many ways, China is slowing, but they’re not stopping. They’re still growing.”
2. Exchange Rates
The U.S. dollar has gained strength in recent months, meaning farm exports to overseas buyers are higher priced and thus less desirable relative to the competition. The bigger story, though, is more optimistic.
“For me, the increase in the value of the dollar is a signal that it’s the U.S. that’s going to lead again,” Henderson said. “To really get out of global recession, it is going to take the U.S. consumer to lead, to buy, to invest and to grow.”
Eventually, the value of the dollar will go down and the U.S. will increase its export volume.
“I wish I knew what year that was going to happen, but I don’t,” Henderson acknowledged. “Ultimately, long-term, that will happen, and we have to be ready for it to take advantage.”
3. U.S. Population Growth
Henderson quoted business management legend Peter Drucker, who once remarked that “of all external changes, demographics … are the clearest. They are unambiguous.” Henderson advised paying attention to the financial habits of baby boomers and millennials, who he thinks will lead the U.S. into a new era of prosperity.
“What are the consumer fads going forward that we can take advantage of in agriculture?” he asked. “It probably means we think about not just selling commodities, but turning [commodities] into consumer-oriented products.”
Wage increases will place more money in the pockets of consumers, allowing them to buy more goods and services, according to Henderson. That will cause inflation to increase. Wage increases are most likely to favorably impact people with education beyond high school “for those who have skill, that have a degree, that have talent,” he said. Healthy U.S. production of cheap energy will be a keen advantage in helping farmers manage rising inflation, he says.
Advances such as hybrid corn and new machinery will continue to help producers manage cost of production. For example, if agriculture can successfully explain to consumers how GMOs add value to their food, “it opens up new technologies to the industry,” Henderson predicted.
6. Interest Rates
Officials say they’d like to push the Federal funds rate from its 0.5% level to 3.5% or even 4%, Henderson noted. Although an overnight jump in rates could be devastating to agriculture and other industries, a gradual uptick over three years is much more likely and will give farmers time to adjust. That means they will gain experience stress-testing their businesses and incorporate those shifts into their budgets in anticipation of those rate increases. “It gives you time to make the adjustment and build it into your farm enterprise,” Henderson explained.
Which of these trends do you see affecting your operation the most in the short term? Long term? Let us know in the comments.