Banks will need to prioritize relationship building and other fundamentals to navigate stubbornly high high interest rates, said Virginia Tech University ag professor David Kohl last month during the Iowa Bankers Association Ag Bankers Conference.
Kohl delivered an impassioned 80-minute speech to more than 200 ag bankers March 18 at the Gateway Hotel in Ames. He sees the ag sector as entering a period of falling prices similar to 2013-20. According to the U.S. Department of Agriculture, net farm income is expected to drop 25.5 percent this year to $116.1 billion from $155.9 billion in 2023 amid rising production costs and falling commodities prices. Direct government farm payments are expected to fall 16 percent amid lower supplemental and ad hoc disaster assistance to ranchers and farmers.
Kohl described the downturn in domestic dairy production. The state of Wisconsin had more dairy farms in 2000 than the entire country has today. The United States is reportedly losing more than 3,000 dairy farms per year. Profits have grown exponentially for farms in the top 20 percent of net income, Kohl said, but much of that growth has been from government payments.
An estimated $68 trillion in generational wealth is expected to be transferred in the coming years, including $3 trillion in agriculture. Farmers must have a transition plan in place as the process takes three years with outside assistance, Kohl noted.
A significant part of Kohl’s speech centered on global economic trends. Half of the world’s population will go through an election this year. Russia President Vladimir Putin recently secured another six-year term in office amid the country’s ongoing war with Ukraine. Mexico’s presidential election is slated for June, and Indian President Narendra Modi is expected to be reelected this year. To Kohl farmers should evaluate India’s weather because it will impact imports of rice, onions, sugar and wheat.
China remains the United State’s top trading partner for cotton, soybeans, pork and milk. Though China has the second largest economy in the world, Kohl said the country of 1.4 billion people has demographic issues caused by its One-child policy. Today, an estimated 20 percent of the country’s 20-30 year olds are unemployed.
Kohl said Asia is likely to view countries in the Southern Hemisphere as better trading partners than the Northern Hemisphere. Brazil still has a massive amount of land in production, with agriculture occupying 41 percent of the country’s total land area. One of the perceived goals of the alliance between Brazil, Russia, India, China and South Africa (BRICS) is to counterbalance the strength of the Western economies.
To Kohl, the world is trending toward deglobalization after 70 years of post-World War II globalization. He expects regional trade blocs will develop in North America, Asia and Europe. Kohl said farmers’ marketing and risk management strategies must consider the likelihood of the United States becoming a secondary supplier of many commodities.
Kohl sees the constant accumulation of debt worldwide — $1 trillion in additional debt every 100 days — as a “grey rhino,” a likely but overlooked threat. As of late March, the United States had $34.5 trillion in national debt. “We are in a tsunami of debt,” he added.