Economist: U.S. ag in reset mode as world growth slows

Economist Dave Kohl says agriculture is facing a decade of transition.

The decade ahead will be one of transition for agriculture, and producers need to be prepared, according to David Kohl, a well-known agricultural economist and professor emeritus with Virginia Tech.

He thinks there’ll be more change in agriculture in the next 10 years than there has been in the last 70 years, he said during a webinar hosted by Northwest Farm Credit Services.

Those changes will be driven by accelerating technology and domestic and international consumers. They’ll affect production, markets, finances and risk management and bring extreme economic and financial volatility, he said.

There will be more opportunity for success or failure, depending on mindset, compared with the past, he said.

“Business IQ is going to be critical for success,” he said.

International trade, political uncertainty, weather and climate change, shifts in consumer demand and structural changes in the industry will all fuel volatility.

“Being in touch and being in the moment is going to be critical,” he said.

The last three or four years have seen a decoupling of globalization. Trade wars and tariffs have broken down trust, and there seems to be a worldwide movement of companies taking care of themselves. That’s caused disruptions in supply chains, manufacturing and agriculture, he said.

Getting the U.S.-Mexico-Canada Agreement passed in the next couple of months is critical, as Canada’s Prime Minister Justin Trudeau is up for re-election and there are concerns over government spending in Mexico, he said.

Kohl said failure to pass USMCA would be disastrous to the U.S. and North American economies.

He said pulling out of the Trans-Pacific Partnership was a mistake and allowed China to come in with its Belt and Road Initiative with the ultimate goal of being the world economic and military leader.

In addition to trade uncertainty, there is political uncertainty throughout the world and a synchronized global economic slowdown, he said.

As for the U.S. economy, he sees storm clouds on the horizon and is keeping an eye on top economic indicators.

“I could definitely see a recession setting up in the second half of next year going into 2021,” he said.

Since the 1970s, recessions have lasted an average of seven months, he said.

“This one might not be deep, but it could be extended,” he said.

Kohl said farm real estate values haven’t collapsed because baby boomer farmers have built up assets and have strong balance sheets and because interest rates have been low.

But farm real estate is local, and it’s a mixed bag across the country,” he said.

But he is expecting more volatility on farm balance sheets and said lenders’ appetites for providing operating loans will be something to watch.

The next decade will bring a fork in the road for producers. It’ll be a low-margin era in agriculture, and producers should focus on fiduciary fundamentals.

“Knowing your numbers is going to be critical,” he said.

Successful producers will have to have a high business IQ and a proactive attitude, he said.

Recommended for you