I recently attended an agricultural economics seminar at the University of Missouri. Dr. David Kohl put on the seminar and did a great job of informing and entertaining. He mainly spoke in regards to the agricultural sector, but many of his lessons can be applied to all areas of business. Dr. Kohl writes for the Corn and Soybean Digest, Ag Country, Ag Choice Farm Credit and many other agricultural resources. I would recommend going to see Dr. Kohl speak if you ever have the chance. Here are my notes from the seminar. I have additional resources if anyone is interested. I especially like the quotes at the bottom of the notes!
Dr. David M. Kohl
Professor of Agricultural and Applied Economics
Virginia Tech, Blacksburg, VA
§ The top 20% of agricultural producers have maintained a ROA >10% for the last 15 years
§ The 50-100-70 Rule
o By the year 2050 the world will require 100% more food, and 70% of this food must come from efficiency-improving technology.
§ Develop an advisory team
o Meet 3 to 4 times per year
o Studies show that an advisory team can make a farm 30% more profitable
o Have a “but what if” lender on your advisory team, not a “yes” lender
§ Use scenario planning
o Develop scenarios to determine what shape your business would be in if the worst were to happen. Create a plan to cope with these scenarios.
§ Trends for the United States:
o Public Debt
o Aging Population
o Entitlements and a simplified tax code
o Interest rates should stay low through 2014
§ If core inflation goes above 2% or unemployment nears 6%, the interest rates will begin to rise.
§ Top challenges/risk to the agricultural industry in the next 5 years
o Volatility and global markets
o Asset bubble vs. Credit bubble
o Normalization of deviation
§ A “new normal” will always lead to a surprise.
o Young lenders and producers have never faced a downturn
o Making decisions on tax returns rather than of accrual-adjusted records
§ There is, on average, a 64% difference
o Six of eight recessions in the past fifty years are due to oil
o Consumers lock up at $3.00 to $3.50 per gallon
o Consumers shut down at $4.00 per gallon
o Oil needs to be around $85/bbl for good economic growth
§ Words to remember:
o “Family living expense is like concrete: Once it sets up, it is difficult to change”
o “If it grows like a weed, it probably is”
o “Be a but what if lender”
o “Better is better before bigger is better”