Ag Econ 101: No Time To Panic

Daily we see negative reports crossing our desk. Floor plan financing disappears. Companies filing for bankruptcy. Plants closing. Companies merging. Commodity prices down. Consumer confidence at an all time low. Is now the time to panic?

An emphatic NO.

We are continually bombarded with the daily news of how bad things are. The Obama administration throws money at every problem it can think of, be it real or imagined.

One truth, however, is often overlooked. There is the general economy and then there is the agricultural economy. There is a reason why these two disciplines are separate areas of study in our universities.

While the general economy is heavily dependent upon the whims and financial ability of often fickle consumers, the ag economy leans much heavier toward a rational, commodity pricing market. And those prices vary based on weather, interest rates, export demand and input prices. I.E., with the exception of weather, all are much more closely aligned with true domestic and international supply and demand, not on the latest fashion that consumers may or may not want.

Does that mean because farm equipment is so closely tied with the agricultural economy no attention need be paid to the sub prime mortgage interest problem? And does that mean that those of us involved in farm equipment need not adjust rationally to the world around us?

Again, an emphatic no to both questions.

The elimination of floor plan financing for farm equipment by Textron is a perfect example. It was because of the tightening of credit restrictions in the consumer economy along with a decline in timely payments, that Textron felt they could no longer continue to provide such financing.

One thing this editor did take away from his classes in ag economics from the University of Missouri (And no chuckling among the “peanut gallery.”), there is nothing more cyclical than the ag economy. Not automobile prices. Not home prices. Not grocery prices. Not office building rental prices.
Nothing!

As long as people need to eat and cloth themselves, and now as more and more biofuels are required to power our automobiles, trucks and airplanes, demand for agricultural products will be there.

Is business good or bad? It depends on who you talk with, what they make and where they’re located. For some, business couldn’t be better. Rainfall is adequate and dealers are prospering. Backlogs for equipment are growing. For others, it’s as dry as a bone. Nobody is stocking equipment. Farm prices are in a free fall. They can see the end of the world.

Even if the end of the world can be seen from your plant, is now the right time to reduce your workforce by three-quarters? Absolutely not! A realistic look at your current sales combined with a rational look at what sales will look like in the coming year should give you a clue at what adjustments should be made.

After all, can a better time be found to negotiate new contracts with suppliers than now? And one other thing, when weather changes for the better (as it has in the southeast), do you really want being caught with no equipment to deliver?

Uncontrollable things, including markets, change fast. And that is one advantage shortline manufacturers have always had. They’re nimble. Unlike their larger brethren, they can change just as fast as the variables.

Daily keep up with the Informa Policy Reports on agriculture which FEMA furnishes its members and be ready for the change. We promise, change WILL come.