The State of the Agricultural
Economy
The state of the agricultural economy can be best described as cautiously optimistic. Let’s explore some of the perspectives and trends occurring based upon my travel and interaction with thought leaders in the U.S. and abroad.
ABOUT THE AUTHOR Dr. David Kohl is the president of AgriVisions, LLC, a consulting firm providing cutting-edge programs to leading ag organizations worldwide.
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The slowdown of the emerging nations’ economies is in full force. The emerging nations include the BRICS (Brazil, Russia, India, China, and South Africa) and KIMT nations (South Korea, Indonesia, Mexico, and Turkey). The average GDP growth rate for these nations in recent years averaged above 9 percent, but it is now well under 4 percent. China, a large importer of food, fiber, and fuel, has recently added stimulus to boost its economy. This factor combined with strong growing conditions in many agricultural production regions of the world has suppressed grain prices and prices of many other commodities such as oil, steel and copper.
The Arkansas Banker | January 2015
What will be the duration of the suppressed prices? Some are indicating that this could be a two- to five-year reset, particularly as the Federal Reserve unwinds stimulus and possibly raises interest rates, which will strengthen the dollar, inhibiting export demand. Proactive producers in this sector are making adjustments to generate a profit by shedding marginal assets and renegotiating costs of land rent and inputs. The livestock sector is hot. Many experts feel that this trend could last at least two years and possibly up to five years unless there is an unusual negative “black swan” event. Profits are generated by high prices early in the cycle; however, reduced costs will be a driver of profit later in the livestock cycle. A word of caution is that the worst decisions are usually made in the best economic times. The U.S. economy is the strongest in the world. This bodes very well for people in the value-added, organic, local, and natural
