Economist Says Ag in ‘Economic Reset’

Many of the same conditions that lifted agriculture to new heights from 2007 to 2012 are now combining to deflate it for the years 2016 to 2020, according to David Kohl, a retired ag economics professor at Virginia Tech University. Kohl describes circumstances in agriculture as an "economic reset" rather than a crash, and said this reset has begun.

Kohl spoke at the Nebraska Soybean Day and Machinery Expo in Wahoo, Neb. Highlights of his talk included here were reported by Don McCabe at farmfutures.com.

Kohl described the years 2002 to 2012 as a "great commodity supercycle," one of three such cycles in the United States since 1910. He cited significant growth in the demand by emerging nations for U.S. food, fuel and fiber; the ethanol and biofuels boon; this country's strategy of low interest rates; and the favorable value of the dollar.

But circumstances have changed. Emerging nations are experiencing declines, even recessions. A mature biofuels market may be profitable only in cases where ethanol plants are near livestock operations. Dysfunction in politics is an issue around the globe. The demand for energy has softened, and the market has become more competitive. Increasing domestic regulations are a challenge. And, growth in the Chinese economy has diminished.

Kohl told his audience they need to be attentive to events in Argentina with its newly elected president, long-term weather patterns, the debt load that large farms carry, and cultural and social attitudes among members of the millennial generation.

He also warned not to expect any kind of bailout because of the national debt and the mood in Congress.

"The bottom line is that the winds of economic change will increase the importance of management skills as producers navigate the dynamic environment," Kohl said. "The importance of forging a strong bond between the producer and lender will be critical as players and stakeholders proactively navigate through the economic turbulence that may be converging on the horizon."

Source: farmfutures.com S