Let’s mark the first quarter of the 21st century. Who could have imagined at the turn of the century that a major terrorist attack on 9/11 would be followed by a worldwide real estate meltdown known as the Great Recession? A virus called COVID-19 would curtail this road warrior’s travel for a year? That webcasts and Zoom would become the primary modes of delivering presentations, reducing human interaction? Or that technology known as artificial intelligence would unleash a “genie-out-of-the-bottle” effect, challenging business, government, the military and day-to-day life?
In agriculture:
- China’s demand for commodities and its rising standard of living created the Great Commodity Super Cycle, bringing robust profits to the agricultural sector.
- Ethanol was another major catalyst
- And zero-bound interest rates for 14 years inflated real estate and stock values.
- China launched the Belt and Road Initiative in 2013 as both an investment and influence strategy, along with the BRICS nations (Brazil, Russia, India, China and South Africa). It has since expanded. This expansion intensifies competition, particularly in commodity markets such as grains, corn and row crops.
Shifting demographics and accelerating trends
The pendulum now swings much more quickly. Consumer trends, geopolitical and societal movements are accelerating due to technology and people’s need for instant gratification, and these forces must be integrated into planning.
Over the past quarter-century, business consolidation intensified, with profits over people becoming the norm in many cases. However, in agriculture, young and beginning farmers and ranchers are often outside-the-box thinkers. These entrepreneurs are bringing fresh vigor and energy to the industry.
The current agricultural landscape
The shift from globalization to deglobalization is impacting export-driven commodity businesses in both agriculture and the general economy. The use of tariffs and sanctions, and how they have been implemented, may result in long-term negative implications in an increasingly competitive global environment.
This year row crops, grain and specialty crop farms with limited revenue streams are facing intense competition, making lower break-evens essential for survival.
Businesses with three to six sources of revenue, both farm and nonfarm, are often resilient, agile, and nimble, especially if they are well managed.
Land values have not collapsed. However, machinery and equipment are experiencing varying degrees of decline in value.
The beef industry is in an extended positive cycle driven by supply-and-demand dynamics, the aging demographics of farmers and ranchers and a consumer shift from carbohydrates to proteins.
More credit, mainly operating funds, is being extended by non-traditional lenders and non-regulated businesses. At the same time, traditional lenders are tightening operating credit, which could create a financial liquidity crunch despite strong net worth, particularly in land values.
Looking forward: Key perspectives
As we close the quarter-century mark, consider these important perspectives:
- Government financial influence. People and businesses often look to the Federal Reserve and government payments as a magic wand to cure all financial and economic issues. This is a myth, and it is not sustainable.
- Liquidity crunch. The government debt has grown to $38.4 trillion from $20 trillion just five years ago. This is not a problem until Treasury and bond market holders demand higher yields for risk, which could create an intense liquidity crunch.
- Bad actors. Fraudulent activities and addiction to gambling through technology are emerging red flags for lenders and society in general.
- Balance in business. On a positive note, most successful businesses strike a balance between warriors and worriers. Warriors push the envelope, but they are countered by the worriers who challenge assumptions and encourage critical thinking.
- Farm transition. The opportunity in agriculture has never been greater, as business transitions are accelerating. However, 21% of agricultural operations do not have a next generation in place.
- Relationships matter. As much as we move toward high tech, the most successful businesses continue to double down on relationships, valuing people over profits.
Wow, a quarter-century look back with the year in review certainly shows a lot of changes.
Our team wishes you well over the holidays and next year. It's been great writing for you.