AgViews Live 2024: Have We Seen This Movie Before?
AgViews Live, Bell Bank’s free annual ag seminar, is back for the 10th time! Join us July 15-17 to hear about some of the most important topics in the world of agriculture today, including how current conditions are starting to feel like history repeating itself. Learn more about what this means and what you can do about it in this issue of AgViews.
Bell Bank is excited to sponsor and present the 10th annual AgViews Live in Fargo, Sioux Falls and Wisconsin Dells on July 15, 16 and 17. This free event continues to grow and is well received by attendees in each of the three host locations.
AgViews Live will once again feature a fast-paced, informative and entertaining presentation by Dr. David Kohl on news and trends in the ag industry, which are important even for those who don’t have a direct connection to agriculture.
If you’ve attended AgViews Live before, I’m confident you’ll want to return. If you haven’t, I invite you to join us, as you may just leave with a bucket of unbiased, unfiltered and usable information. But don’t just take my word for it. Here’s what 97-year-old Angie Anderson, who has attended every AgViews Live and is pictured above, and John Pierce, business development associate at Pifer’s Auction & Realty
Staying informed and educated has never been more important, with change happening at an ever-increasing pace. It seems that things that have never happened before now happen all the time.
in Fargo, have to say about the event.
“I look forward to it every year,” Angie said. “I always enjoy listening to Dr. David Kohl. He has so much to share about what’s going on in the world.”
“Dr. David Kohl and Lynn Paulson’s engaging, informative sessions offer valuable insights into what’s happening in agriculture today,” John added. “I look forward to attending AgViews Live 2024 and encourage others to do the same.”
At this year’s event, Dr. Kohl and I will discuss how the current agricultural economy is starting to feel awfully similar to the years following the last super cycle. We’ll talk about what this could mean, and look back at some of the lessons learned in the wake of that period of economic decline that may be useful going forward.
Staying informed and educated has never been more important, with change happening at an ever-increasing pace. It seems that things that have never happened before now happen all the time.
Read more about this year’s AgViews Live throughout this newsletter, including an interview with Dr. Kohl. Visit www.bell.bank/agviewslive for more information and to register, and we hope to see you in Fargo, Sioux Falls or Wisconsin Dells!
Angie Anderson and Dr. David Kohl at a past edition of AgViews Live
Ag Finance Insights: Looking
Back, and Looking Ahead
In recent weeks, loan renewal season has been wrapping up, as ag banks and lenders have worked with producers to review the previous year’s profitability and set up the coming year’s operating lines of credit.
In speaking with ag lenders in several states and regions, it sounds like 2023 was a mixed bag in terms of profitability. I recently spent a week in Wyoming and Montana visiting ag bankers and their customers. It’s breathtaking and scenic country, and everyone I met was honest, genuine and authentic. Livestock is big in many of these areas –particularly cow/calf producers. Between experiencing excellent prices for cattle and some decent moisture to
get their pastures off to a good start, the mood was pretty optimistic and upbeat – a little different from what we’re starting to see in corn, soybean and wheat country.
Data from the University of Minnesota’s Center for Farm Financial Management largely validates what lenders are saying. Good producers and managers are generally doing fine, while many producers on the lower end are struggling for the first time in four years.
The chart below shows an aggregate of about 2,500 producers in different ag sectors (such as livestock, grains, dairy and hogs). So, while it isn’t reflective of all producers, the information and trends still tell the story.
As I’ve noted in past newsletters, 2020 through 2022 was an extremely profitable period for many producers –especially in the case of grain. 2023 looks to be a return to a more normal distribution of profitability, and I suspect 2024 breakeven prices for many corn and soybean producers will be close to $5 and $12, respectively.
2023 Median Net Farm Income by Farm Size
Data: Minnesota, All farms, Farm size measured by gross revenue in thousands of dollars
Spring Planting Update
MOTHER NATURE IS STILL VERY MUCH IN CHARGE
Earlier this spring, concerns persisted over a lack of moisture and a growing chance of a significant drought in much of the Upper Midwest. A virtually snowless winter and above-average temperatures combined to make many worried about what spring would bring.
Well, Mother Nature reminded us she’s still in charge, with significant and frequent rainfall throughout May. As of mid-June, many producers are probably thinking they’ve seen enough rain and would instead like to get some heat and sunshine for a change.
We’ve seen some wild swings, to be sure. You can get too much moisture in a matter of hours, while it usually takes weeks to end up in a drought. Finding the right balance is in the hands of Mother Nature. At least for now, drought concerns have faded for most areas.
Even with grain markets showing some recent strength, further margin compression can be expected in 2024, with profitability swings and variances likely even larger. Having said that, the ag sector and most individual operations are in good financial shape and have an extended financial runway. However, it’s important to not let yourself be complacent. It will still take strong management and attention to detail to maintain financial strength. Many poor management decisions are made at the top of economic cycles.
FARMLAND REMAINS A STRONG ASSET
One key to the success of businesses such as farming, ranching, manufacturing or even banking is having adequate liquidity or working capital to absorb increased downside risk. As bankers, it’s something we watch closely – both the amount of liquidity and the sources of liquidity.
Don’t sleep on or ignore leverage, either. Leverage has a tendency to creep up on producers. Up until the last year or so, capital has been relatively cheap because interest rates were very low. That has changed considerably. The cost of leverage (interest rates), whether for new purchases or having to refinance longer-term debt to cover operating losses and build back liquidity, is something to be aware of. Land values remain strong if a producer needs to leverage farmland assets to secure new debt in order to replenish an operation’s liquidity. On average, the tops may be in for land values – at least in the short term. It’s always interesting to note the historical returns on owning farmland. One way to look at it is that over the last 25 years, land values have approximately quadrupled, returning on average about a 6% annual return while inflation during the same period averaged only about 2.6%. In short, these are key reasons why a lot of folks want to own farmland. It’s been a good inflation hedge.
OTHER THOUGHTS
Historically, there seems to be a relationship between commodities and inflation, with commodities also seen as a hedge against inflation. Precious metals are examples (gold and copper are currently very high). Is this relationship
still relevant in today’s economic environment, and can agricultural commodities possibly be far behind?
Looking at the overall economy, it can be difficult to take a positive long-term outlook, with a $35 trillion deficit and daily interest costs approaching $3 billion. Is the economy doing well? For one thing, consumer spending continues to be robust. Despite much of the excess government stimulus cash being gone, many consumers don’t have a problem putting their continued spending on credit cards.
Moreover, it’s worth noting that the government is the strongest sector of the economy, with a large amount of economic growth coming as a result of government deficit spending. Historically, government spending has ranged from 18% to 20% of GDP. Currently, it’s 23% to 25%. That’s a significant difference.
Looking ahead, there are a couple of things in agriculture that bear watching. First, there are possible bio-security concerns over the spreading of bird flu to other species. It’s been found in a few humans as well as in dairy cattle (thankfully, cows generally recover pretty quickly), but not yet in meat or pasteurized milk. This is on the radar of many, and overreactions in these situations often come into play.
Something else worth keeping an eye on is how U.S. regulators are looking at Sustainable Aviation Fuel (SAF), and how it needs to meet certain carbon guidelines. As I’ve discussed before, based on current regulations, it appears that it’s difficult, if not impossible, for U.S. farmers to meet SAF requirements. Ironically, it seems Brazil is already meeting these requirements, and we’re reportedly importing used cooking oil from China and Brazil that meets the requirements as well. Go figure.
Meanwhile, as I touched on in our last newsletter, artificial intelligence has the potential to be a real game changer. In agriculture, AI likely won’t replace farmers or producers, but at least hypothetically, producers who use AI may replace those who do not.
I’ll touch on these topics and more at AgViews Live.
-Lynn Paulson
Focus on the Fundamentals: Q&A with Dr. David Kohl
In 2024 so far, Dr. David Kohl has traveled to 32 states for agriculture-related speaking engagements. Even though he’s already spoken to audiences in more than half the country, there’s still one event to come that he’s particularly looking forward to.
For the 10th time, Dr. Kohl, professor emeritus of agricultural finance and small business management and entrepreneurship at Virginia Tech University, will join Lynn Paulson at AgViews Live on July 15, 16 and 17.
“AgViews Live is a special event,” said Dr. Kohl. “There’s always an energy there. It’s one of my favorite events of the year to do.”
We recently caught up with Dr. Kohl to find out what to expect from his AgViews Live presentation, and to discuss some of the more pressing issues affecting ag producers today.
WITH EVERYTHING GOING ON IN THE WORLD – POLITICALLY, ECONOMICALLY, GEOPOLITICALLY, ETC. – WHERE CAN AG PRODUCERS FIND OPPORTUNITIES?
I think one of the things that’s very critical in a world of chaos is to make sure you maintain your focus. Manage the things you can control, and manage around the things you can’t. If you put all your time and energy toward the things you can’t control, you’ll just spin your wheels.
I find that the people who follow the basics and the fundamentals of business, marketing, risk management and finance will be best positioned to take advantage of profit opportunities no matter what’s going on in the world around us. You build the best business model during uncertain times, because that’s when you’re forced to focus on your fundamentals and your basics. People often get into trouble during the good times, because they can get complacent.
SOMETHING WE’RE SEEING MORE AND MORE IN AGRICULTURE IS CONSOLIDATION –AMONG PRODUCERS, LANDOWNERS AND MANY AGRIBUSINESSES.
WHAT’S
THE LONG-TERM IMPACT OF THIS TREND?
As these companies get bigger, my concern is that they may not have the technicians and support to deliver their services. What happens if a computer chip goes out, and you can’t plant or harvest when you need to? What if your only dealer is 200 miles away? As these firms consolidate and become bigger, they have to have the support staff and resources to deliver their services to the people who depend on them, on a timely basis.
Another concern is the relationship aspect. When these companies focus on the bottom line, sometimes they forget about the balance between the head and the heart – but relationships still matter. If you can keep those relationships, you won’t have to worry about return on equity.
WHAT CAN WE LOOK FORWARD TO IN YOUR AGVIEWS LIVE PRESENTATION?
I always like to inform everyone about what’s going on globally, in China, India, Europe and the Southern Hemisphere, and some of the elements I’m seeing from an economic standpoint. I’ll share about interest rates, of course. And then my goal is to give people four or five takeaways or tools that they can go back and implement in their business or personal lives.
Lynn and I stress that some of the variables we talk about will impact your business, others will impact your family, and others might impact your personal lives. We’re there to inform, we’re there to provide some action and strategy that attendees can take back, and we’re there for engagement – our favorite part of the event is the questionand-answer session.
LET’S
TALK ABOUT THE EVENT’S MAIN THEME: “HAVE WE SEEN THIS MOVIE BEFORE?” WHAT IS THIS REFERRING TO, AND WHAT DO AG PRODUCERS NEED TO KNOW?
What that’s referring to is how our current period is feeling very similar to the post-commodity super cycle, which lasted from around 2007 to 2012. That was followed by what we call the “grinder years,” from 2013 to early 2020, when we had lower prices but the costs hadn’t inflated and interest rates were at record lows. This time, we’re getting hit by a triple play – prices are down, costs are up, and interest rates are up.
We’re seeing a sense of urgency now, much more so than in the previous period. With all of these factors going against you, you can easily have a big negative cash flow and take working capital and equity away from your business. One of the elements that I want to stress right now is that it’s important to take ownership of your numbers. You can’t just look at your financials once a year – with these conditions, you have to be on them at least quarterly. Ownership of your numbers has never been more important.
It’s also important to have a good advisory team. That could include a crop or livestock consultant, but a good lender –someone you can trust and who can be candid with you –is imperative during this period of time. A good relationship with a lender has never been more important.
Like I said earlier, all of this makes it important to maintain your focus on the fundamentals. Those who are able to do so will be best positioned to take advantage of profit opportunities throughout the year as they arise, despite these challenging conditions.
Member FDIC
2024
10th ANNUAL
Monday, July 15
8 a.m. - 12 p.m.
Hilton Garden Inn Fargo 4351 17th Ave. S., Fargo, N.D.
Tuesday, July 16
8 a.m. - 12 p.m.
Sioux Falls Convention Center 1201 Northwest Ave., Sioux Falls, S.D.
Wednesday, July 17
8 a.m. - 12 p.m.
Glacier Canyon Lodge 45 Hillman Rd., Wisconsin Dells, Wis .
*Breakfast and lunch included.
HAVE WE SEEN THIS MOVIE BEFORE?
DR. DAVID KOHL , ag finance author and speaker, will discuss the 3 “Ps” – how to handle an economic pinch , take a financial punch , and prosper when times are tough.
LYNN PAULSON , Bell’s director of agribusiness development, will share how to apply lessons learned following the last super cycle to take advantage of future opportunities.
If you’re ready to talk about your farm financing, call an experienced Bell Bank ag lender in your area. We’re proud to serve American farmers and agribusinesses!
Our roots run deep. Bell has the area’s longest-serving group of lenders, with more than a century of experience among them. We understand that as the business of farming becomes ever more complex each year, you need a lender who understands that challenges are opportunities for success.
We have money to lend. Find greater stability from season to season with a long-term loan, or use shorter-term loans to increase cash flow to your farming operation.
Lynn is Bell’s director of agribusiness development. He writes and speaks about agricultural lending and finance, the global economy and the ag economy.
He has expert knowledge of the ag industry, having worked in ag lending for more than 30 years and as a retired owner and operator of a Benson County, N.D., family farm. His banking experience includes merging several banks and holding companies and growing the new company to $600 million. He has also served on various financial boards.
