Top Five Challenges and Opportunities Facing Ag Producers Today

A client recently asked me to name the top challenges and opportunities facing farmers today.

After giving that question some thought, I came up with the following list. Please note that this is simply one person’s opinion at this point in time. I certainly welcome the opinions of others and welcome any comments or suggestions from our readers.

Here then, is my response to the question:

Challenges:

1. Low Commodity Prices/Declining Net Farm Income

Major farm commodities—corn, soybeans, wheat, hogs and cattle—have dropped significantly in value since prices peaked in 2012. As a result, net farm income has decreased from over $100 billion in 2012 to approximately $60 billion in 2016. Because of this, producers have been forced to manage input production costs carefully and seek maximum cost efficiency in all aspects of their operations.

2. Ag Industry Consolidation

Numerous mergers, acquisitions and consolidation of major seed, crop protection and other suppliers of ag inputs have occurred recently. This leaves producers with fewer choices. Many feel that farmers’ buying power has been diminished as a result of less competition.

3. Government Regulations

New regulations related to food safety, use of water, traceability and verification of crop origins have placed greater demands of time and expense on the ag producer.

4. Labor Availability

Certain segments of agriculture—specifically vegetables and specialty crops, dairy, poultry and swine production—are facing a serious shortage of workers. Some crops go un-harvested due to this shortage of labor, creating sizable economic losses for the ag producer.

5. Consumer Demands

Today’s consumers are much more aware of and interested in where their food comes from and how it is produced. Non-GMO crops, source of origin, animal welfare and care, environmental stewardship and sustainability are all new expectations placed on ag producers. These expectations put more responsibility on the farmer.

Opportunities:

1. Technology

New technology continues to greatly enhance the productivity and efficiency of today’s agricultural operation. Precision ag equipment, advanced seed hybrids, improved animal genetics and a much greater reliance on and use of data are helping farmers produce more and reduce the costs of production. Technological improvements in just the past five years have drastically improved the producer’s potential to increase his or her productivity.

2. Affordable Interest Rates

Low to moderate interest rates over the past decade have been extremely helpful to farmers, especially during recent years of depressed commodity prices and decreased farm income. Operating loans have been affordable for most farmers, and mortgage rates for land purchases have enabled many producers to expand the overall acreage of their operations, enhancing their efficiency and profit potential.

3. Export Growth

Exports of ag commodities including soybeans, corn, rice, wheat, pork, beef and poultry have grown dramatically in the past five years. This development has been a major factor in supporting prices for these ag products. If export demand and sales to global trading partners were not this healthy, commodity prices would be much lower and the overall ag economy would be in serious trouble.

4. World Demand for Food

The world population continues to grow. It is expected to reach 9 billion hungry people by 2050, from 7 billion today. Ag producers will be expected to increase their production of food on roughly the same land area. This increased demand should drive prices and create exciting new opportunities for farmers.

5. Consumer Demand for Specialized Production

Consumer demand can be viewed as both a challenge and an opportunity. Those producers who respond to consumer demands for non-GMO, organic, verifiable and sustainably produced foods should be able to earn a premium or increased price for their production. By responding to consumer demands, they will have a competitive advantage over producers who do not change their production to adapt to a changing marketplace.

Would you agree with my assessment of the challenges and opportunities facing ag producers today? If you would like to discuss the topic, contact me at hello@paulsen.agency or (605) 336-1745.