Harvey Mitchell: Agriculture issues: Kentucky prognostications for 2008"

This message from Harvey Mitchel of the Center for Rural Development is an example of the sort of thing we would post on a blog... it takes about 3 minutese to post and edit (the formatting is occasionally lost when you paste from Word requiring re-formatting for paragraphs.)

Issues for rural Kentucky, especially for agriculture, are challenging and require farmers to search more than normal for information to make sound decisions. Choosing enterprises, deciding how to develop a strategy for the long term, evaluating what fits for each of our distinctly different farms and defining goals based on the changing economic environments and moving market targets makes life interesting on the farm. Specialists in agriculture, and there are many, predict prices, inventory changes and specific enterprise input costs. This time of year, while planning the crop mix or livestock program, farmers are challenged to gather enough information. We can use the best prognostications available, but forecasts rarely address the issue of natural disasters – such as the impact of last year’s drought.

In effective planning, it is vitally important to keep an open mind about what can go wrong. Maintaining a positive attitude in agriculture is difficult these days; however, we should always acknowledge that there are those who do well during adversity and often find opportunity. I continue to get requests for market predictions and the outlook for traditional Kentucky crops and livestock and must admit the crystal ball is not very clear this year.

In fact, issues that normally have little to do with farming are now big issues. Predictions are that Kentucky will have record farm income in 2008 of $4.2 billion, and UK economists predict crop receipts will be up 12 percent, livestock receipts down 2.4 percent, government payments down and feeder calf prices to decline slightly because of high feed prices and market instability. Also, vegetable and other horticulture revenue expansion is likely because of increasing demand for local and organic products. It’s even predicted we will see a slight increase in tobacco production. What is your prediction? Well, once again we should take inventory of where we are and understand how we fit together.

Not all farms or farmers are created equal and their goals certainly vary. Therefore, related to outlook, I guess we can only discuss trends, both in and out of agriculture, which might alter your plans. For example, the economic slowdown is a surprise to most of us and certainly the lowering of interest rates and any stimulus package is reason to pause. The national political activities around us will have an impact for the long term and at this stage of the race the outcome is anyone’s guess. Will the federal farm bill be vetoed? How will international trade be changed? Will ethanol subsidies continue? What is the impact of the “Green Focus” or perceived global warming for the long run? There are a lot of questions with few clear answers. There appears to be some certainties: higher input costs (can we afford the high prices for limited potash, phosphate, nitrogen and seed?); drought carryover problems (low pregnancy rates and inventory replacement needs), higher land leases and land prices (higher grain prices will move these upward); COOL and food safety mandates; and livestock market instability. Wow. Just these certainties make enterprise analysis for 2008 tough.

Of course, many landowners are not required to evaluate all issues since they have chosen 1 or 2 already. But rest assured, the non-farm issues DO impact choices and the challenge before us is to manage our operations in a conservative manner, look for new opportunities or simply limit risk. For example, with cattle operations, such as stockers, marketing opportunities are better if they buy smaller calves because the lengthened window of ownership allows profit taking when prices rise for any reason, even those that have little to do with supply and demand. So while you’re in survival mode this winter, try to find hay and feed and plan for the probability that there will be opportunity to make money. There has always been a cattle cycle. For example, and even though it is disrupted by drought in the west for eight years and in the southeast for two years, business is still good. Also, keep a closer eye on cost of production and markets as they move quickly. Consider adding value either by feeding, grouping cattle, forming alliances or contracts, trace production output for every animal you feed or breed and remember there have always been cycles worth noting for both crops and livestock. Look at the bigger picture of agriculture, international markets, structure of the industry for which you produce, economic and governmental changes likely to occur, and impact of new ideas, such as renewable energy.

My commentary basically says to:

1.) do your best with what you know; continue to
2.) learn about the business you’re in; and
3.) keep a cautious eye out for outside influences which directly or indirectly impact your bottom line.

“Success” is a relative term and simply raising kids and living on the farm carries a given degree of it. Farming may be more complicated now than in the past, but every acre is farmed by someone like you who chooses to do so for different reasons. I wish all landowners success – and hang in there.

Harvey Mitchell
hmitchell@centertech.com