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Volatility 'the new normal?'
There's good news and bad news for today's young farmers.
The bad news: Today's volatile markets are only going to get more volatile in the future, and it's going to exert a lot of pressure on the farmers working in those markets.
The good news: If you can adapt to tightening margins and increased volatility, there's going to be a lot of opportunity across the board in agriculture. That was the main message from Dave Kohl, Virginia Tech University Professor Emeritus of Ag finance and small business management, who chatted with FFA New Century Farmer conference attendees Friday morning. The conference is sponsored by Pioneer Hi-Bred, Rabo AgriFinance, Case IH, CSX Corporation, and Successful Farming magazine as the media partner.
Whether you're looking to build a smaller, possibly organic or otherwise niche market farm, a mid-sized crop and/or livestock operation or work your way into a large family-based corporate farm, there's going to be ample opportunity in the future, Kohl said. It's just a matter of managing the business venture the right way and with the right priorities.
"One of the things I see is more opportunity in the next 10 years than the last 35 years. But, more opportunity to fail, too. It's all about positioning," Kohl said. "Managing volatility is going to be the new normal. You're going to have to manage volatility at the extremes. It's going to take management at a high, high level. But, there's high reward if you manage your business well."
What's your desired farm size and type for the future? If you want to develop a smaller niche-type farm, Kohl says there's a lot more than just the specific production techniques required of something like an organic or natural farm.
"There's a lot of opportunity in natural, organic and local. But, if we take all farms and go that way, the world starves," he says. "If you are going to be in that kind of market, you're not only going to have to be a good producer, but have a good risk management plan. Many go out of that business because they don't have the management and people skills necessary."
There's also a lot of room for younger farmers who want to enter into mid-sized crop or livestock farms. The key for this kind of operation is modesty.
"You're going to have to keep your debts modest. You're probably going to have to have a modest lifestyle. Not like a pauper, but live in balance. It's going to be a 'better is better' strategy, not a 'bigger is better' strategy," Kohl says. "Oftentimes, when I interview traditional mid-sized farmers, they will often say the best crop they grow on their farms is their children. There is still a place for the mid-sized farm."
If your future farm goals include working into a larger, primarily family-based commodity grain or livestock farm, personal relationships among business stakeholders don't become any less important. But, if this is your targeted area to set your farm roots, just be willing to look for those relationships where you ordinarily wouldn't.
"There's a place for the large, complex farm. We do have more corporate LLCs, for example, but a lot of them are large family corporations," Kohl says. "But, some of those don't have a next generation. Some of your best draft picks are from outside the family."
One variable that will continue growing in importance for American farmers, Kohl adds, is the economic shift underway around the world. Developed countries like the U.S. and Japan are losing economic ground to developing and advancing nations like China and Brazil, which in addition to holding vast quantities of natural resources, also control a growing amount of the world's wealth. The successful farmer of the next few decades will learn how to both read and react to the shifting economic trends underfoot.
"Countries like Brazil, Russia, China and now South Africa are going to emerge in the next 10 years. Countries like the U.S. and Japan are going to fall back. You're going to have to operate business models with developing countries coming up and developed countries moderating," Kohl says. "Ten years ago, China was the 7th-largest economy in the world. Today, it's the second-largest. Brazil was the 14th-largest in the world and today is the 6th largest."
And, it's countries including China and Brazil -- as well as others in the Middle East -- who are currently financing the U.S. national debt, a growing problem for our nation's economy, Kohl adds.
"One thing you're going to have to do is increase your financial literacy," he says.