Ag Economist Bullish on Agriculture!
I was at a meeting today and listened to a presentation by a well-known ag economist with Wells Fargo, Dr. Michael Swanson. I could listen to Swanson for hours. Some economists have trouble explaining complicated issues in ways that those of us who are not economists can understand. Swanson has a way of explaining concepts in terms we can understand. With low commodity prices, Swanson said something that surprised many of us at the meeting. He said he was optimistic and bullish on agriculture!
Corn and soybean prices and not very good right now. Unless there is a major weather issue in South America or elsewhere in the world corn and bean prices will not likely improve much. So, how can you be bullish on agriculture? Swanson said we do not have an income problem raising corn and beans but a cost-structure problem. When prices were high for three or four years, costs went up, seed, fertilizer, machine and land costs all increased dramatically. With corn and bean prices lower, expenses must adjust lower too.
Those costs have been moving downward, but they always drop slower than commodity prices. I have seen that cycle at least a couple of times since the early 1970s. While things seem difficult right now, Swanson said agriculture is still profitable. According to the USDA, farmers nationwide had a $60 billion net farm income in 2016. Certainly not as high as it was a couple of years ago, but looking at a graph of net farm income each year for decades it is still a good number!
The challenge for farmers is to get their cost structure in line with revenue. In addition, we can maybe increase revenue by becoming better marketers. These things are "fixable." If you are not doing well marketing there are people who can help. If costs are out of line they need to be addressed, and the sooner the better. We have a great resource in the Farm Business Management Program at the South Central College, Riverland, and others around Minnesota. The key is, if you are not good at some phase surround yourself with advisers that are!