Some Needed Perspective
July 28, 2015
There’s been a great deal of angst about the ag economy over the past six to eight months – much of it warranted, given the challenges of grain and row crops. Add to that the somewhat uncertain future of biofuels as the industry awaits a decision on government mandates, and you have a very tricky picture. And as farmer spending has slowed in many areas, affected agribusiness sectors have begun to adjust and reduce their expectations. But it’s not all bad news. As Mark Twain was famously quoted, “The report of my death was an exaggeration.” So too, the fears of a return to an 1980s ag economy have been exaggerated.
I’ve heard some much-needed perspective on all this recently from two respected ag economists. Brent Gloy of Agricultural Economic Insights, LLC, spoke at the 2015 South Dakota Governor’s Ag Summit. He looked at all the economic data, good and bad, and found some balance.
“The data right now are still showing that the financial situation in agriculture is still very strong. Right now we’re going into this downturn in a pretty strong financial condition, overall. Will there be people who have financial challenges? Yes. Were there people who had financial challenges when we had $8 corn prices? Yes. I think it’s time for a little perspective. We’re in much better financial condition than we were in the ‘80s. Is it going to be easy? Probably not. But I think we’ll get through it with some good management and persistence.”
So smart producers with some foresight and common sense will be able to weather this storm. Much of the livestock sector is experiencing better times, thanks in large part to the drop in grain prices. There is some good news for the ag sector in the continued lower prices for fuel that affects transportation and equipment costs and lower fertilizer prices.
As far as the effect on, and reaction to, the situation by agribusiness, Steven Johnson, Ph.D., Farm and Agriculture Business Management Specialist, Iowa State University, says it’s all about ROI.
“I think as farmers look out over the next one to two years, the key is return on investment. They’re going to want to buy products and services that they know have a return that adds to their bottom line. They’re going to buy products from trusted suppliers because they feel as though there is a good return on investment, and there’s going to be a service that comes along with that product as well. I think agribusiness has to realize it’s not business as usual. The farmers have tightened their belt; agribusiness is going to have to tighten its belt as well. As farmers slow their spending, so too will agribusiness. Farmers are going to turn to those lenders and suppliers that they likely have strong relationships with. Whoever helped you grow in the boom years of ’11, ’12, ’13, are they there when you’ve got more financial struggles in ’15 and ’16?”
While less than 2 percent of the U.S. population is involved in production agriculture, the agriculture industry employs 20 percent of the population. The interdependence of all facets of agriculture with agribusiness has never been more crucial. And there continue to be dominant factors affecting the ag economy that are outside of our control. What is in our hands is the ability to maintain relationships, effectively communicate needs and trends, and keep that valuable perspective for long-term success.