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New Century Farmers Focus on Future Challenges
"It's not the bad years that get you into trouble – it's the good years," Dave Kohl told 50 FFA members selected from 150 applicants across the U.S. to participate in the 2013 New Century Farmers Conference July 14-20 at DuPont Pioneer in Johnston, Iowa. "A winning streak causes a sense of complacency, and it leads you away from following sound business fundamentals."
Kohl, professor emeritus, Virginia Tech, Blacksburg, was one of a top-flight faculty of ag financial, production, and industry experts assembled to offer specialized training in entrepreneurial leadership, practical knowledge, vision, global perspective, and personal growth. The students also toured DuPont Pioneer facilities and other Des Moines industry plants during the week.
Kohl's topic, Managing in the Wild World of Global Economics, also highlighted the influence of technology and data gathering a well as best management practices and Super Commodity Cycles.
Kohl, who grew up on a dairy farm in New York, is involved in a small dairy farm and creamery that markets milk, ice cream, and eggnog direct to consumers. He highlighted the importance of robotics and data in the dairy industry. "Robotics is bringing the younger generation back to small farms on the East Coast," he said. "Data is revealing how making incremental changes in production practices can improve management. Cows chew their cud about four hours and 52 minutes a day. if it drops to two hours or less, they are in heat, or sick. Technology can detect this."
Data gathering is associated with grain production, but Kohl said that livestock applications, including precision cattle management, may be equally important.
Kohl said that the most successful farmers in his generation have a younger generation in the farm operation. "You put a new dog in with an old dog, and it pushes the older generation, and energizes it," he said.
He shared his concerns about the economic outlook for U.S. agriculture. "Financial ratios give a green light at today's high grain prices," he said. "But at $4 corn and $9 beans, all signals turn red. Things can go from good to bad quickly. Look for a punch coming in four years. Your best management practice is to have a lender who understands your business. That doesn't mean the lowest interest rate. Cheap money is expensive if you don't have the earnings to pay it back. When you hear a lot about the 'new normal,' be careful. Things may be close to crashing."
He reminded students of his three C's: "Be conservative during good times in order to be courageous during bad, times so you can be consistent all the time," he said. "Build working capital. Cash flow and earnings pay back loans, not appreciation. Examine your margins and how volatility may affect margins, both positively and negatively."
Kohl discussed the four Super Commodity Cycles since 1900. "This one has lasted longer, almost a full decade," he said. "I advise you to make a profit plan."
First, allocate 60% of your profits to efficiency and incremental growth. "You need to get better before you get bigger," he told them. "You get efficient by making incremental changes. Next, devote 30% of your profits to working capital. Spend 10% of profits doing what you want," he added.
"Then, when the Super Cycle turns, you'll be in a position to buy land," Kohl concluded.
Turning his attention to the global economy, Kohl cautioned that changes are ahead for the U.S. leadership position. "Until 1830, China had 30% of world GDP," he said. "The U.S. owes $14 trillion, and $1.2 billion is to China. The focus of world economic activity is shifting back to the eastern hemisphere of the globe. The U.S. still will be one of the world economic leaders."
He advised the New Century Farmers to watch what happens this fall in the German elections. "Europe is China's biggest customer," he said. "If Angela Merkel isn't re-elected, there will be a push to break up the Euro. That would strengthen the U.S. dollar. If Europe slows down, China will slow down. Some of these developments will come back to influence the ag economy."
Kohl said profits have been capitalized into land values during the current Super Cycle. "If land values continue to escalate, the U.S. will price itself out of production, compared to the southern hemisphere," he said. "Farmland selling for $21,000 per acre in the U.S. represents high fixed costs."
Kohl introduced Richard Heath, founder of Innovate Ag Research, to give an Australian perspective on agriculture and technology. Heath managed his family grain farm for 20 years. He received a Nuffield Scholarship in 2002, and has specialized in precision agriculture technologies. Heath was in the U.S. to attend a precision ag conference.
Together, Kohl and Heath put together a list of best management practices for the New Century Farmers:
1. Assemble a board of advisers, including outside directors, and pay them so they know you place value and importance on your quarterly meetings.
2. Join or launch a peer financial benchmarking group (informal and private). Agree to share four or five ratios.
FINBIN, Minnesota's Farm Financial Management Database includes 50,000 producers who benchmark. "Don't benchmark for the average, or you'll be out of business in five years," Kohl says. "The top 20% of farm performers have had average ROI above 10% for the past 20 years."
3. The best business investment is in yourself; allocate 1% or slightly more of your net income to invest in education about your career and industry.
4. Travel to visit diverse, distant farms. "It helps you see your own farm through a different lens, and learn from different parts of agriculture," Heath said.
5. Set goals. "Only 4% of people have goals," Kohl says. "It helps you focus."
6. Understand risk management. "Examine your margins and how volatility may affect margins, both positively and negatively," Heath said.
7. Educate the public about agriculture. "About 85% of the American public is two generations away from the farm," Kohl said.
The New Century Farmers Conference is sponsored by DuPont Pioneer, Case IH, CSX Corp., and Farm Credit Services, as a special project of the National FFA Foundation. Successful Farming is a media partner of the program.