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Tips from a veteran economist

Agriculture.com Staff 07/29/2008 @ 8:03am

Oil prices that could hit $200 a barrel this fall, or collapse to $70 if the U.S. dollar ever gets back on par with the Euro. Land prices that are rising too fast. And agriculture that's not longer just for food, fiber and fuel.

These were just some of the megatrends that Agricultural Economist David Kohl threw out Monday to challenge the students attending the New Century Farmer conference in Des Moines, Iowa organized by FFA and sponsored by Pioneer Hi-Bred International, Rabobank and Successful Farming magazine.

Kohl is a retired professor of agricultural finance and small business management at Virginia Tech who is hardly retiring. He logs thousands of miles a year as a global consultant, speaker and writer. The gangly former basketball coach moved quickly around a conference room at a motel near Living History Farms, lobbing memorable aphorisms at some of tomorrow's farmers and ranchers.

"Every time you have a war, you not only see commodities increase, you see land values increase," Kohl said as he looked at a chart showing decades of land price trends. The upward spikes during World War II, the Vietnam War and the current war in Iraq were dramatic.

"Usually, once you have a big run up, you have a collapse," he added, tossing out another catchy principle: "In business, if it grows too fast, it's a weed. And, by the way, our land values are growing too fast."

While Kohl appears confident of some trends, like the eventual return to earth for land prices and the need for farmers to understand consumers, he encourages the next generation in production agriculture to plan for different possibilities when running their businesses.

"You've got to think in probabilities," he said.

Eight of every 10 dollars spent in agriculture is related to oil and energy, Kohl said.

If the U.S. attacks Iran this fall, oil prices would quickly jump to $200 a barrel and gasoline would cost $7 to $8 a gallon, Kohl said. But if the economic woes of the U.S. spread to the rest of the world, oil prices could hit $50 a barrel. If the U.S. dollar is on par with the Euro, oil would cost about $70 a barrel.

Kohl agreed with his student listeners that today's cheap dollar boosts the exports of U.S. grains and other commodities, and that it's making farmers' input costs more expensive.

He encouraged the students to plan for risk management and to be prepared for continued volatility in agriculture.

Agriculture may have once been defined at the production of food and fiber. But Kohl breaks it down into five areas: Food, fiber, and now fuel. It also includes what he calls life experiences and life sciences.

Kohl is a part owner and business coach in a value-added dairy business, Homestead Creamery in Virginia's Blue Ridge Mountains. Not only does it deliver bottled milk directly to consumers, it recently hosted 5,000 visitors who came to the farm to meet, and try milking, its cows.

"One thing I would suggest to you, is that as society goes high-tech, the more they're going to crave high touch," Kohl said.

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