By Mark Parker
Even the tightest fences can’t keep out the impact of a fast-spinning global economy on the bottom line of FCS Financial customers.
And with knowledge being arguably the most important asset a farmer possesses, FCS Financial brought nationally known experts to share their knowledge of international economics and other issues at the Commercial Farmer Symposium held earlier this year.
Marci Rossell, former chief economist for CNBC, led off the educational event with her global economic insight. With experience as an economist at one of the country’s largest mutual fund companies, as well as the Federal Reserve, she told FCS Financial farmers to watch for a recovering U.S. economy and increasing importance of emerging markets for farm exports.
Rossell believes this will be a transition year for the U.S. economy and American agriculture is playing a key role. After a flat 2010, slight improvement in 2011 and again in 2012, 2013 could be the comeback year, she said.
Two sectors are driving growth, Rossell explained. Having worked its way through an avalanche of foreclosures, the housing market should be poised for significant improvement with spill-over effects of freeing-up income and boosting the labor market.
Exports, however, are the single biggest driver of economic recovery, the economist said. Because they are capital intensive rather than labor intensive, exports don’t do much to alleviate a high unemployment rate hovering around 7.8 percent. For farmers, however, Rossell stressed that export demand — particularly on the part of China — is highly important to farm prosperity.
“You’re going to hear a lot about China becoming the world’s largest economy but remember, it ought to be enormous because they have well over a billion people,” Rossell pointed out, adding that China’s Gross Domestic Product (GDP) per person is still only about 60 percent that of Mexico.
“Don’t worry about China getting too rich,” she said. “They still have a lot of room to grow so expect them to keep right on growing and that’s good news for farmers. In the last 10 years, China has gone from abject poverty to a global middle class that eats meat once a day. That’s the marker — meat consumption,” Rossell said.
Wealthier citizens demanding a better diet have driven U.S. ag exports to China, altering the face of farm exports.
“The ag sector is much more dependent on the global economy than ever before and we’ve seen a customer shift,” Rossell observed. “In 2000, Japan was by far the biggest customer for U.S. ag exports but that has dropped while China has gone from buying just 2 percent of our farm exports to being our single biggest customer.
“We are heavily dependent on China and, yes, we do buy a lot of consumer goods from them but agriculture relies on Chinese demand for its products.”
Capitalizing on that demand, however, requires another skill set. And when it comes to marketing agricultural commodities, there is no place for emotion, according to market advisor Richard Brock.
“Most farmers make their marketing decisions by emotion,” the publisher of the The Brock Report said. “Sometimes logic does not prevail in marketing.”
Brock said farmers need information as well as patience and wisdom to operate successfully in the marketing arena. And sometimes it requires understanding that goes beyond the numbers. Farmland is a great example. Pointing out that prices are well above $15,000 per acre in the northern half of Iowa and Illinois, Brock said the high price of corn in recent years is only part of what drives land prices.
“There’s lots of cash out there,” he said. “For farmers with a high net worth, what’s the difference what they pay for land if they don’t need the money. You can’t understand that as a rational investor. Cropland values were up 18 percent in the Corn Belt from 2011 to 2012. Farm sector equity is at an all-time high, doubling in the last 10 years. That’s a lot of firepower to keep farmland prices supported.”
Brock’s view of the 2013 corn market was a cautionary tale predicting lower prices due to reduced corn exports and depressed demand caused by numerous factors.
Pointing out that the peak-to-trough corn cycles have been getting shorter, Brock said, “History tells us to expect significantly lower corn prices in the next couple of years. Big bulls follow big bears. Why should this be any different, particularly when you take demand out of the market?”
Although supplies of corn remain relatively tight, Brock expects carryover to increase dramatically as export corn, feed use and corn for ethanol production have all dropped.
Soybeans are “a different animal,” Brock said. He does not see a large soybean carryover coming, largely due to last year’s widespread drought conditions in the Corn Belt. Although soy usage is down, exports are up and crush is at an all-time high, indicating stronger prices relative to corn.
Brock’s prediction that corn will dip into the $3-$3.50 range in the next year provoked a difference of opinion from another of the Commercial Farmer Symposium’s speakers.
Agricultural futurist Jay Lehr bet Brock $1,000 that corn will not drop below $4 per bushel for any 30-day period between February 1, 2013, and January 31, 2015. While Brock expects China to remain a small player in the corn export market, opting instead to feed millions of small swine herds on food scraps, Lehr believes $5 per bushel corn will prove too tempting for the Chinese.
Lehr, who is science director of the libertarian think tank, the Heartland Institute, is bullish on agriculture in general.
“Farming is the greatest profession ever — we ‘re in the golden age of agriculture,” he asserted.
Lehr said despite a media-fed mythology, the family farm has never left America. Media depiction of agriculture, however, has brought an erosion of the warm regard the public has traditionally had for U.S. farmers, he said.
“We are no longer loved by the public because we don’t talk to the public,” Lehr said. “We were once the epitome of everything good in America — wearing a white hat and riding a white horse.”
Pervasive misinformation on issues such as the environment have turned both the horse and hat black, Lehr said. He urged farmers to invest two hours a month talking to non-farmers about agriculture.
“You think people aren’t interested but they are fascinated,” he said. “Don’t let the media do the talking for you.”
Lehr suggested letting consumers know that every day is Earth Day for American farmers, explaining the role fertilizer and crop protection chemicals play in providing an economical, healthful and dependable food supply.
“Organic farming is fine,” Lehr told the FCS Financial customers, “but we need to double our yields not halve them.”
The futurist said a growing middle class around the world is demanding better food and although he acknowledged volatility in a farm commodity prices will always exist, he said he cannot foresee bad times ahead.
“The pie is getting larger and that’s not going to change,” Lehr predicted. “China is not going to eat our lunch — we’re going to be serving them lunch.”
Consultant Bill Conerly provided a global and domestic economic snapshot projecting low to moderate growth in the U.S. economy with a one-in-five risk of recession. The biggest risk of recession, he said, comes from the European economic crisis.
“I’m forecasting they will muddle through but there is a chance for a meltdown that would have very negative consequences. They’re important to us — about $2 trillion in exports,” he said.
If another recession occurs, Conerly said, it will likely center on construction and housing although it would still influence farm financial decisions. The economist said farmers should expect long-term interest rates to rise as the economy slowly improves but he predicts that rates will remain relatively low.
Although optimistic, Conerly urged farmers to do contingency planning for various economic scenarios in order to make more rapid decisions.
“When a crisis comes, the resource in the shortest supply is time,” he said.
Helping farm families plan for the future was the objective of Kevin Spafford, whose company, Legacy by Design, is an agribusiness succession-planning firm.
Noting that 70 percent of U.S. farmland will change hands in the next 20 years, Spafford asserted that farming is an increasingly complex business with high demands and higher risks that requires protection.
“If the farm business is the single greatest asset we have, why aren’t we planning for succession?” he asked.
Spafford urged farmers and ranchers to initiate a succession planning process that strives to treat heirs fairly rather than equally. Saying that estate taxes are a relatively small part of the challenge —one that can be dealt with by tax professionals — Spafford said the process begins with a family meeting.
Farm families can find fairness and common ground if they are willing to come to the table, communicate openly and remain flexible, he said. Moreover, farm families have resources at their disposal to aid the process.
“You have folks you can rely on to help. Professional resources can help you plan but it all starts with the family,” he concluded.
Board Chairman James Nivens of LaRussell said FCS Financial’s educational efforts always draw a very positive response from participating farmer-members and represent an important part of the lending institution’s commitment to Missouri agriculture.
“It’s part of what we do as a lender to stay relevant,” he said. “Commercial size farms operate on a very high level so we tailor educational programs to fit their needs. It helps keep FCS Financial and our customers on the same page at the same time as well as providing networking opportunities for all of us to learn from each other.”
Even the tightest fences can’t keep out the impact of a fast-spinning global economy on the bottom line of FCS Financial customers.And with knowledge being arguably the most important asset a farmer possesses, FCS Financial brought nationally known experts to share their knowledge of international economics and other issues at the Commercial Farmer Symposium held earlier this year.
Marci Rossell, former chief economist for CNBC, led off the educational event with her global economic insight. With experience as an economist at one of the country’s largest mutual fund companies, as well as the Federal Reserve, she told FCS Financial farmers to watch for a recovering U.S. economy and increasing importance of emerging markets for farm exports.
Rossell believes this will be a transition year for the U.S. economy and American agriculture is playing a key role. After a flat 2010, slight improvement in 2011 and again in 2012, 2013 could be the comeback year, she said.
Two sectors are driving growth, Rossell explained. Having worked its way through an avalanche of foreclosures, the housing market should be poised for significant improvement with spill-over effects of freeing-up income and boosting the labor market.
Exports, however, are the single biggest driver of economic recovery, the economist said. Because they are capital intensive rather than labor intensive, exports don’t do much to alleviate a high unemployment rate hovering around 7.8 percent. For farmers, however, Rossell stressed that export demand — particularly on the part of China — is highly important to farm prosperity.
“You’re going to hear a lot about China becoming the world’s largest economy but remember, it ought to be enormous because they have well over a billion people,” Rossell pointed out, adding that China’s Gross Domestic Product (GDP) per person is still only about 60 percent that of Mexico.
“Don’t worry about China getting too rich,” she said. “They still have a lot of room to grow so expect them to keep right on growing and that’s good news for farmers. In the last 10 years, China has gone from abject poverty to a global middle class that eats meat once a day. That’s the marker — meat consumption,” Rossell said.
Wealthier citizens demanding a better diet have driven U.S. ag exports to China, altering the face of farm exports.
“The ag sector is much more dependent on the global economy than ever before and we’ve seen a customer shift,” Rossell observed. “In 2000, Japan was by far the biggest customer for U.S. ag exports but that has dropped while China has gone from buying just 2 percent of our farm exports to being our single biggest customer.
“We are heavily dependent on China and, yes, we do buy a lot of consumer goods from them but agriculture relies on Chinese demand for its products.”
Capitalizing on that demand, however, requires another skill set. And when it comes to marketing agricultural commodities, there is no place for emotion, according to market advisor Richard Brock.
“Most farmers make their marketing decisions by emotion,” the publisher of the The Brock Report said. “Sometimes logic does not prevail in marketing.”
Brock said farmers need information as well as patience and wisdom to operate successfully in the marketing arena. And sometimes it requires understanding that goes beyond the numbers. Farmland is a great example. Pointing out that prices are well above $15,000 per acre in the northern half of Iowa and Illinois, Brock said the high price of corn in recent years is only part of what drives land prices.
“There’s lots of cash out there,” he said. “For farmers with a high net worth, what’s the difference what they pay for land if they don’t need the money. You can’t understand that as a rational investor. Cropland values were up 18 percent in the Corn Belt from 2011 to 2012. Farm sector equity is at an all-time high, doubling in the last 10 years. That’s a lot of firepower to keep farmland prices supported.”
Brock’s view of the 2013 corn market was a cautionary tale predicting lower prices due to reduced corn exports and depressed demand caused by numerous factors.
Pointing out that the peak-to-trough corn cycles have been getting shorter, Brock said, “History tells us to expect significantly lower corn prices in the next couple of years. Big bulls follow big bears. Why should this be any different, particularly when you take demand out of the market?”
Although supplies of corn remain relatively tight, Brock expects carryover to increase dramatically as export corn, feed use and corn for ethanol production have all dropped.
Soybeans are “a different animal,” Brock said. He does not see a large soybean carryover coming, largely due to last year’s widespread drought conditions in the Corn Belt. Although soy usage is down, exports are up and crush is at an all-time high, indicating stronger prices relative to corn.
Brock’s prediction that corn will dip into the $3-$3.50 range in the next year provoked a difference of opinion from another of the Commercial Farmer Symposium’s speakers.
Agricultural futurist Jay Lehr bet Brock $1,000 that corn will not drop below $4 per bushel for any 30-day period between February 1, 2013, and January 31, 2015. While Brock expects China to remain a small player in the corn export market, opting instead to feed millions of small swine herds on food scraps, Lehr believes $5 per bushel corn will prove too tempting for the Chinese.
Lehr, who is science director of the libertarian think tank, the Heartland Institute, is bullish on agriculture in general.
“Farming is the greatest profession ever — we ‘re in the golden age of agriculture,” he asserted.
Lehr said despite a media-fed mythology, the family farm has never left America. Media depiction of agriculture, however, has brought an erosion of the warm regard the public has traditionally had for U.S. farmers, he said.
“We are no longer loved by the public because we don’t talk to the public,” Lehr said. “We were once the epitome of everything good in America — wearing a white hat and riding a white horse.”
Pervasive misinformation on issues such as the environment have turned both the horse and hat black, Lehr said. He urged farmers to invest two hours a month talking to non-farmers about agriculture.
“You think people aren’t interested but they are fascinated,” he said. “Don’t let the media do the talking for you.”
Lehr suggested letting consumers know that every day is Earth Day for American farmers, explaining the role fertilizer and crop protection chemicals play in providing an economical, healthful and dependable food supply.
“Organic farming is fine,” Lehr told the FCS Financial customers, “but we need to double our yields not halve them.”
The futurist said a growing middle class around the world is demanding better food and although he acknowledged volatility in a farm commodity prices will always exist, he said he cannot foresee bad times ahead.
“The pie is getting larger and that’s not going to change,” Lehr predicted. “China is not going to eat our lunch — we’re going to be serving them lunch.”
Consultant Bill Conerly provided a global and domestic economic snapshot projecting low to moderate growth in the U.S. economy with a one-in-five risk of recession. The biggest risk of recession, he said, comes from the European economic crisis.
“I’m forecasting they will muddle through but there is a chance for a meltdown that would have very negative consequences. They’re important to us — about $2 trillion in exports,” he said.
If another recession occurs, Conerly said, it will likely center on construction and housing although it would still influence farm financial decisions. The economist said farmers should expect long-term interest rates to rise as the economy slowly improves but he predicts that rates will remain relatively low.
Although optimistic, Conerly urged farmers to do contingency planning for various economic scenarios in order to make more rapid decisions.
“When a crisis comes, the resource in the shortest supply is time,” he said.
Helping farm families plan for the future was the objective of Kevin Spafford, whose company, Legacy by Design, is an agribusiness succession-planning firm.
Noting that 70 percent of U.S. farmland will change hands in the next 20 years, Spafford asserted that farming is an increasingly complex business with high demands and higher risks that requires protection.
“If the farm business is the single greatest asset we have, why aren’t we planning for succession?” he asked.
Spafford urged farmers and ranchers to initiate a succession planning process that strives to treat heirs fairly rather than equally. Saying that estate taxes are a relatively small part of the challenge —one that can be dealt with by tax professionals — Spafford said the process begins with a family meeting.
Farm families can find fairness and common ground if they are willing to come to the table, communicate openly and remain flexible, he said. Moreover, farm families have resources at their disposal to aid the process.
“You have folks you can rely on to help. Professional resources can help you plan but it all starts with the family,” he concluded.
Board Chairman James Nivens of LaRussell said FCS Financial’s educational efforts always draw a very positive response from participating farmer-members and represent an important part of the lending institution’s commitment to Missouri agriculture.
“It’s part of what we do as a lender to stay relevant,” he said. “Commercial size farms operate on a very high level so we tailor educational programs to fit their needs. It helps keep FCS Financial and our customers on the same page at the same time as well as providing networking opportunities for all of us to learn from each other.”
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