By Mark Parker
The products grown on Missouri farms connect the people who produce them with the other 7.3 billion people on the planet -- and that connection has a bottom line impact for FCS Financial customers. At FCS Financial's Commercial Farmer Symposium, it became clear that global politics, economics, and even diets, impact the financial well-being of every Missouri farm.
Among the event’s nationally known speakers, Dr. Jason Henderson, Associate Dean in the College of Agriculture and Director of Extension at Purdue University, shared his insights on the global macro-economic trends affecting production agriculture.
American farmers are great at responding to economic signals to increase production, he noted. Today, agricultural producers are hearing about a growing world population and the demand for more protein in the diets of the emerging economies.
“But didn’t we hear that in the ‘70s?” Henderson asked a crowd of more than 300 farm folks. “We called it planting fence row to fence row.”
The economist cautioned that, while long-term prospects are strong, current conditions demand vigilant financial management and a constant eye on what’s happening with overseas customers.
Today’s situation contrasts a strengthening U.S. economy with a significant growth slow-down in China and a sluggish Eurozone economy. The Federal Reserve expects the U.S. to achieve a “normal rate of unemployment” of 5.2 to 5.5 percent in 2015 with an improved GDP growth of 3.3 percent compared to European growth of about 1.1 percent.
China, where $1 in every $5 of U.S. exports go, has enjoyed a robust economy for a decade with 10 percent annual growth. That rate is projected to drop to 7.7 percent for 2015 as U.S. exports to China have been flat for the past two years.
“The challenge for agriculture,” Henderson said, referring to the export outlook, “is long-term strength but short-term weakness.”
Along with an export plateau, the former Federal Reserve economist noted that ethanol — a major driver in the recent super cycle — now faces challenges. Because it is a government-driven market, ethanol is vulnerable to politics. Additionally, reduced fuel consumption during the recent recession and lower energy prices have resulted in excess production capacity.
“And we’ve had big (corn) supplies,” Henderson said. “It all comes down to lower prices.”
Since 1975, the U.S. crop sector has experienced two downturns, 1981-1996 and 1997-2002. Those past cycles suggest a 5-year slump in corn profits with a similar outlook for other crops, he said.
On the other hand, Henderson noted that hog and cattle prices are expected to remain strong in the near-term. He did pose two caveats for a bright livestock price picture. First, it remains to be seen how consumer demand will be affected by continually higher meat prices. Second, the rate at which producers expand to take advantage of profit opportunities will dictate how soon the supply-demand shift occurs.
Overall, the effect of these economic changes will significantly pressure farm incomes. With that will come the challenge of adjusting family living expenses that have risen right along with corn prices, he said.
Land values will also react, Henderson predicted, explaining that farmland is currently very expensive relative to cash rent. With multiple factors affecting land value — interest rates, energy prices, urban expansion — he stressed that land values are largely based on expectations.
And farmer expectations for cash rent and interest rates will have an impact on the price of the quarter down the road.
Although U.S. agriculture is in very good financial health with the lowest debt-to-asset ratio since the ‘60s, both real estate and non-real-estate debt has been rising since 2011, Henderson said.
Farmers should be on the lookout for higher interest rates and increased debt service brought on by inflation, he added, explaining that, for inflation to occur, the global economy will have to strengthen to bring on increased demand.
The Fed, Henderson said, expects interest rates to begin to rise this year.
“What are you doing to get ready for a 3-4 percent rise in interest rates in the long-run?” he asked. “
With the shifting agricultural cycle, Henderson urged farmers to stayed tuned-in to the global economy with an acute awareness of rising inflation and higher interest rates — and to maintain the liquidity needed to deal with both.
“I think agriculture is going to sail smoothly,” he concluded. “I think we’ll adjust to this. It’s going to be fine as long as you don’t have too much debt. Isn’t that the lesson of the 1980s?”
Texas A&M Honor Professor and Regents Fellow Danny Klinefelter discussed some of the business philosophy lessons he’s learned from the nation’s top farmers. The economist has been involved for 25 years with The Executive Program for Agricultural Producers (TEPAP), which helps peer groups of farmers share their knowledge and experience.
The most successful agricultural managers share four important patterns, he said:
A critical element of that is communication, Klinefelter said. That includes everyone involved in the operation, from family members and employees to CEOs and suppliers.
“If a leader can’t get a message across clearly and motivate others to act on it then having a message doesn’t matter,” he told the group.
Klinefelter emphasized that the only truly sustainable competitive advantage a farmer-manager has is the ability to learn and adapt faster than his or her competition. One way to facilitate that, he said, is to network both in and out of agriculture in a quest to learn and identify better ways to produce commodities as well as manage the farm business.
Klinefelter said the primary difference between the top farmers and the rest is timing — when to expand, cut back or redeploy on investments, marketing decisions or business activities.
“Unfortunately, the average producer tends to change or act only when he or she feels the heat, rather than because they see the light,” Klinefelter said.
He urged farmers to operate their businesses in a mode of continuous improvement and suggested that they understand the macro issues that affect their operations, including economic, political, social, cultural and weather issues.
The best managers, Klinefelter said, are also able to identify their own strengths and weaknesses as well as developing contingency plans for multiple “what if” scenarios.
Finally, the economist emphasized that top farm managers reject the status quo.
“They know someone, somewhere has a better way of doing things,” he said. “This might mean totally changing the direction of the business. … They have learned to face reality as it is, not as it was or they wish it to be. And they know any differentiated product with a market premium will be commoditized if enough people copy what they’re doing.”
Darren Frye, president and CEO of Water Street Solutions, shared his insights on honing family farm success — both financial and personal — through better communication.
Emphasizing that human resources are a farm’s most valuable assets, Frye urged farmers to define their values and to align themselves with employees and others who share those values. That includes, he said, communicating such values to prospective employees to create a cohesive team that’s on the same page.
“If your overall values are not exactly the same as other family members, that’s okay, but you need to agree on your business core values,” Frye said.
Values form the foundation of a farm business, he continued. “Your core business values are the basis of your objectives and they help you stay on course to meeting those objectives.
Frye suggested farms begin with a written business plan detailing the operation’s current status, where it’s leaders would like to take it and how they will get it there.
He said that, too often, farm families work together 18 hours a day but never discuss what they would like the farm to look like 10 years down the road.
In family farm communication, Frye said it’s important to be honest with each other, make sure you have all the facts, deal with issues in a timely manner, attack the problem rather than the person and act instead of react.
“If you can’t communicate effectively, you can’t make good decisions,” Frye concluded.
Lowell Catlett, futurist and dean of the New Mexico State University College of Agriculture, painted a bright and vibrant future for American agriculture but cautioned that the farm community must be ready to embrace change.
“Get ready for a revolution in technology,” Catlett said, describing what he called “incredible efficiencies” in livestock health and productivity that will power the meat protein industry forward while creating a smaller environmental impact.
Another driving force behind agricultural change is growing wealth in America and around the world.
“We currently have the smallest number of people in abject poverty than any other time in recorded history,” Catlett said. “The first thing people do when they get more money is to change their diets and what they want most is meat protein.
“There are other changes in increasing wealth. People get more selective. There’s a boom in organics, free range chickens, etc. Suddenly we start to get picky but that’s a great opportunity for you because now everyone is a market niche.”
For all the technological advances, however, Catlett pointed out the human side of increasing knowledge. Noting that science has found that surrounding yourself with people you like boosts the immune system and even having animals can support heart health.
“There’s definitely a technological revolution, and yet, people matter. People matter, plants matter, animals matter. We in agriculture have always known it and now the whole world wants it,” he concluded.
The Commercial Farmer Symposium also carried an inspirational message from Jim “The Rookie” Morris, who made it to the big leagues at age 35. His path, often blocked by personal problems, was the subject of the major motion picture, “The Rookie.”
Morris said the people around you are made up of “dream makers and dream killers” and gave the FCS Financial crowd the following advice:
FCS Financial CEO David Janish welcomed customers and guests to the Symposium by pledging to continue providing financing and
financial services to Missouri agriculture with a level of expertise unmatched by others in the industry. He said FCS Financial’s past and future success is a reflection of the success of its customers and said the organization will move forward with its efforts to help strengthen rural communities.
The products grown on Missouri farms connect the people who produce them with the other 7.3 billion people on the planet -- and that connection has a bottom line impact for FCS Financial customers. At FCS Financial's Commercial Farmer Symposium, it became clear that global politics, economics, and even diets, impact the financial well-being of every Missouri farm.
Among the event’s nationally known speakers, Dr. Jason Henderson, Associate Dean in the College of Agriculture and Director of Extension at Purdue University, shared his insights on the global macro-economic trends affecting production agriculture.American farmers are great at responding to economic signals to increase production, he noted. Today, agricultural producers are hearing about a growing world population and the demand for more protein in the diets of the emerging economies.
“But didn’t we hear that in the ‘70s?” Henderson asked a crowd of more than 300 farm folks. “We called it planting fence row to fence row.”
The economist cautioned that, while long-term prospects are strong, current conditions demand vigilant financial management and a constant eye on what’s happening with overseas customers.
Today’s situation contrasts a strengthening U.S. economy with a significant growth slow-down in China and a sluggish Eurozone economy. The Federal Reserve expects the U.S. to achieve a “normal rate of unemployment” of 5.2 to 5.5 percent in 2015 with an improved GDP growth of 3.3 percent compared to European growth of about 1.1 percent.
China, where $1 in every $5 of U.S. exports go, has enjoyed a robust economy for a decade with 10 percent annual growth. That rate is projected to drop to 7.7 percent for 2015 as U.S. exports to China have been flat for the past two years.
“The challenge for agriculture,” Henderson said, referring to the export outlook, “is long-term strength but short-term weakness.”
Along with an export plateau, the former Federal Reserve economist noted that ethanol — a major driver in the recent super cycle — now faces challenges. Because it is a government-driven market, ethanol is vulnerable to politics. Additionally, reduced fuel consumption during the recent recession and lower energy prices have resulted in excess production capacity.
“And we’ve had big (corn) supplies,” Henderson said. “It all comes down to lower prices.”
Since 1975, the U.S. crop sector has experienced two downturns, 1981-1996 and 1997-2002. Those past cycles suggest a 5-year slump in corn profits with a similar outlook for other crops, he said.
On the other hand, Henderson noted that hog and cattle prices are expected to remain strong in the near-term. He did pose two caveats for a bright livestock price picture. First, it remains to be seen how consumer demand will be affected by continually higher meat prices. Second, the rate at which producers expand to take advantage of profit opportunities will dictate how soon the supply-demand shift occurs.
Overall, the effect of these economic changes will significantly pressure farm incomes. With that will come the challenge of adjusting family living expenses that have risen right along with corn prices, he said.
Land values will also react, Henderson predicted, explaining that farmland is currently very expensive relative to cash rent. With multiple factors affecting land value — interest rates, energy prices, urban expansion — he stressed that land values are largely based on expectations.
And farmer expectations for cash rent and interest rates will have an impact on the price of the quarter down the road.
Although U.S. agriculture is in very good financial health with the lowest debt-to-asset ratio since the ‘60s, both real estate and non-real-estate debt has been rising since 2011, Henderson said.
Farmers should be on the lookout for higher interest rates and increased debt service brought on by inflation, he added, explaining that, for inflation to occur, the global economy will have to strengthen to bring on increased demand.
The Fed, Henderson said, expects interest rates to begin to rise this year.
“What are you doing to get ready for a 3-4 percent rise in interest rates in the long-run?” he asked. “
With the shifting agricultural cycle, Henderson urged farmers to stayed tuned-in to the global economy with an acute awareness of rising inflation and higher interest rates — and to maintain the liquidity needed to deal with both.
“I think agriculture is going to sail smoothly,” he concluded. “I think we’ll adjust to this. It’s going to be fine as long as you don’t have too much debt. Isn’t that the lesson of the 1980s?”
Texas A&M Honor Professor and Regents Fellow Danny Klinefelter discussed some of the business philosophy lessons he’s learned from the nation’s top farmers. The economist has been involved for 25 years with The Executive Program for Agricultural Producers (TEPAP), which helps peer groups of farmers share their knowledge and experience.The most successful agricultural managers share four important patterns, he said:
- They anticipate and adapt to the changing needs of their markets. Recognize the future will always belong to those who see the possibilities before they become obvious to the average producer.
- They are open to new ideas and considering different points of view.
- They operate more as resource managers than as producers.
- They recognize the importance of networking and developing alliances across the value chain.
A critical element of that is communication, Klinefelter said. That includes everyone involved in the operation, from family members and employees to CEOs and suppliers.
“If a leader can’t get a message across clearly and motivate others to act on it then having a message doesn’t matter,” he told the group.
Klinefelter emphasized that the only truly sustainable competitive advantage a farmer-manager has is the ability to learn and adapt faster than his or her competition. One way to facilitate that, he said, is to network both in and out of agriculture in a quest to learn and identify better ways to produce commodities as well as manage the farm business.
Klinefelter said the primary difference between the top farmers and the rest is timing — when to expand, cut back or redeploy on investments, marketing decisions or business activities.
“Unfortunately, the average producer tends to change or act only when he or she feels the heat, rather than because they see the light,” Klinefelter said.
He urged farmers to operate their businesses in a mode of continuous improvement and suggested that they understand the macro issues that affect their operations, including economic, political, social, cultural and weather issues.
The best managers, Klinefelter said, are also able to identify their own strengths and weaknesses as well as developing contingency plans for multiple “what if” scenarios.
Finally, the economist emphasized that top farm managers reject the status quo.
“They know someone, somewhere has a better way of doing things,” he said. “This might mean totally changing the direction of the business. … They have learned to face reality as it is, not as it was or they wish it to be. And they know any differentiated product with a market premium will be commoditized if enough people copy what they’re doing.”
Darren Frye, president and CEO of Water Street Solutions, shared his insights on honing family farm success — both financial and personal — through better communication.Emphasizing that human resources are a farm’s most valuable assets, Frye urged farmers to define their values and to align themselves with employees and others who share those values. That includes, he said, communicating such values to prospective employees to create a cohesive team that’s on the same page.
“If your overall values are not exactly the same as other family members, that’s okay, but you need to agree on your business core values,” Frye said.
Values form the foundation of a farm business, he continued. “Your core business values are the basis of your objectives and they help you stay on course to meeting those objectives.
Frye suggested farms begin with a written business plan detailing the operation’s current status, where it’s leaders would like to take it and how they will get it there.
He said that, too often, farm families work together 18 hours a day but never discuss what they would like the farm to look like 10 years down the road.
In family farm communication, Frye said it’s important to be honest with each other, make sure you have all the facts, deal with issues in a timely manner, attack the problem rather than the person and act instead of react.
“If you can’t communicate effectively, you can’t make good decisions,” Frye concluded.
Lowell Catlett, futurist and dean of the New Mexico State University College of Agriculture, painted a bright and vibrant future for American agriculture but cautioned that the farm community must be ready to embrace change.“Get ready for a revolution in technology,” Catlett said, describing what he called “incredible efficiencies” in livestock health and productivity that will power the meat protein industry forward while creating a smaller environmental impact.
Another driving force behind agricultural change is growing wealth in America and around the world.
“We currently have the smallest number of people in abject poverty than any other time in recorded history,” Catlett said. “The first thing people do when they get more money is to change their diets and what they want most is meat protein.
“There are other changes in increasing wealth. People get more selective. There’s a boom in organics, free range chickens, etc. Suddenly we start to get picky but that’s a great opportunity for you because now everyone is a market niche.”
For all the technological advances, however, Catlett pointed out the human side of increasing knowledge. Noting that science has found that surrounding yourself with people you like boosts the immune system and even having animals can support heart health.
“There’s definitely a technological revolution, and yet, people matter. People matter, plants matter, animals matter. We in agriculture have always known it and now the whole world wants it,” he concluded.
The Commercial Farmer Symposium also carried an inspirational message from Jim “The Rookie” Morris, who made it to the big leagues at age 35. His path, often blocked by personal problems, was the subject of the major motion picture, “The Rookie.”Morris said the people around you are made up of “dream makers and dream killers” and gave the FCS Financial crowd the following advice:
- You can’t let other people drag you down.
- You are who you hang out with.
- We are who we are because of the people in our lives.
- When you make a mistake, you have to laugh at yourself.
FCS Financial CEO David Janish welcomed customers and guests to the Symposium by pledging to continue providing financing and
financial services to Missouri agriculture with a level of expertise unmatched by others in the industry. He said FCS Financial’s past and future success is a reflection of the success of its customers and said the organization will move forward with its efforts to help strengthen rural communities.
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