MADISON, Wis. -- Oil, fertilizer, land… Everything is going up in price, it seems, except milk.
Price volatility has become a fact of life in agriculture, and how well a farmer is able to handle that volatility could well determine whether he stays in business, according to Danny Klinefelter, professor and extension economist with Texas AgriLife Extension and Texas A&M University.
Agriculture in general has been spared from some of the shocks felt in other sectors of the economy. But there have been significant downturns. In 2002, 2006 and 2009, farm income fell more than 30 percent from the previous year, he told those attending the Professional Dairy Producers of Wisconsin business conference this week.
He offered the following observations:
- Land values have been rising 20 percent to 30 percent a year in some areas. Yet, in the absence of hyperinflation, those kinds of rates are unsustainable, he said. Are we in a land-price bubble? he asked? “I don’t know, but (land prices) won’t be going up as much.”
- “We’ve become addicted to low interest rates in this country,” he said. And while the Federal Reserve came out this week and said that interest rates would remain low though 2014, it may not last forever. Younger producers and highly leveraged operations would be hurt the most by a rise in interest rates.
- To appreciate how quickly things can change, it took just three months for the world economic crisis to set in during the late summer and fall of 2008.
- Lenders are placing increasing emphasis on a business’ ability to withstand risk.
- The next Farm Bill will place more emphasis on price insurance and risk management.
- Speaking of Congress, non-agricultural committees, such those handling energy and immigration issues, could have more influence on farming than the agriculture committees themselves.