It’s important for U.S. farmers to understand what is considered the new normal in global economics.
Dr. David M. Kohl, president of AgriVisions LLC and a professor emeritus at Virginia Tech, provided an overview Nov. 27 during a workshop titled “The Wild World of Global Economics” at the 2012 Virginia Farm Bureau Federation 2012 Annual Convention in Chantilly.
Kohl said farmers need to be prepared for unusual events, or “black swans,” worldwide.
“If input prices increase or profits for commodities decrease, you have to anticipate, plan and budget appropriately," he said. “You have to have a lot of stretch in your waistband.”
There are more opportunities to succeed or fail in agriculture, so planning and proper management is important, Kohl said.
“You can’t plan on being average. If you do, you’ll be out of business in five years. You have to see a widening gap of farm profitability. The better get better, and the worse fall behind.”
Kohl said farmers need to be proactive and remember what he called the “HUT Principle”: A lot of people hear; few understand; and even fewer take action. “You have to take action. You may fail, but you may not. A key element is to not duplicate your mistakes.”
What’s driving agriculture now, he said, is emerging nations, including Brazil, Russia, India, South Africa, South Korea, Indonesia, Mexico and Turkey. “They depend on our food, fiber and fuel, and that’s what drives prices.”
U.S. farmers are currently in the largest supercycle ever seen, Kohl said. “It has lasted two-and-a-half times longer than any other supercycle, and the wild world of economics is driving it.”
Emerging nations; ethanol and biofuels; oil, gas and minerals; and Mother Nature are some of the factors, he said. “The Federal Reserve has helped by keeping the value of the dollar low, and interest rates are still low.”
Kohl predicted that the United States will dismount from the current supercycle within the next five years. The U.S. economy, he said, has to get back on track.
“Other countries are worried about the United States. If we go over the ‘fiscal cliff’ it will put us back in a recession. We need clarity. We don’t want our foreign investors worried.”
Kohl used debt after World War II as a comparison to the United States’ current situation.
The difference in the nation’s debt after World War II was that 88 percent of it was held in bonds by Americans, he said, whereas 41 percent of today’s debt is foreign-financed.
“The U.S. economy is the best house in a bad neighborhood on the global scene,” Kohl said. But the housing market is starting to turn around, he noted, and there are reasons to be optimistic about agriculture.
By 2050 the world will need 100 percent more food, fiber and fuel, and 70 percent of that will come from technology and sustainable agriculture, Kohl said.
“There also is a place for all agriculture, because one size does not fit all.”
There are more young people seeking careers in agriculture, as well as more women and minorities, Kohl said. “One in six jobs is connected to agriculture. Agriculture is a good career. … It’s profitable. The cooperative system support network is important. There are always mentors to help. We have to empower the youth and empower technology.”
With nearly 150,000 members in 88 county Farm Bureaus, VFBF is Virginia’s largest farmers’ advocacy group. Farm Bureau is a non-governmental, nonpartisan, voluntary organization committed to protecting Virginia’s farms and ensuring a safe, fresh and locally grown food supply. View more convention news as it becomes available at VaFarmBureau.org/NewsVideo/ConventionNewsroom.aspx.
Contact Greg Hicks, VFBF vice president of communications, at 804-241-4633.