5 business insights from David Kohl

I listened to David Kohl's "Outlook for 2009" today (November 3). He was the first speaker of the year for Canadian Farm Business Management Council’s 2008-09 Agriwebinar series. Kohl is a prof at Virginia Tech and a regular speaker on the farm conference circuit. I have seen him speak at least twice. He's a good speaker, but he delivers such a rapid and steady flow of data and suggestions, that I can barely keep up to him. You will be able to watch an archived version of the webinar at www.agriwebinar.com, but last I checked it wasn't posted, yet.

Here are five highlights I took from the presentation:

1. China, India, Brazil and other emerging markets have been growing so fast over the past decade, that we had come to rely on this demand underpinning the market. But growth has slowed, particularly in China now that the Olympics are over and the government-sponsored rebuilding of Beijing is winding down. “Should growth in these countries drop below five per cent, we could see a major global recession, with grain prices and input prices dropping further.”

2. Prepare for the “liquidity lag.” In a global recession, prices that farmers get paid for their commodities fall faster and earlier than prices farmers have to shell out for their inputs. In other words, while prices for wheat and canola have already fallen, it could take months for nitrogen fertilizer and diesel fuel to fall an equivalent amount. Kohl recommends that farmers build up some cash reserves for 2009.

3. That said, Kohl has heard that urea prices in the U.S. are around $500 per ton in places, down from $1,100 not that long ago.

4. Lenders are getting tighter with credit. Good farmers who have a strong relationship with their banks will have to jump through a few more hoops, but they should be able to get the credit they need, Kohl says. Everyone else could find themselves in a cash crunch in the spring if they don’t take steps now to shore up the credit they need. You’ll need a good business plan, and you’ll have to prove good earnings and cash flow.

5. Is land a good investment? After listening to Kohl, I’m not so sure. He says land is a good wealth accumulator, but a poor cash flow provider — unless you sell it. And he says you don’t want to be forced to sell land to meet your cash flow needs. That scenario is starting to play out for some U.S. farmers, Kohl says. Land now accounts for 87 per cent of the equity on U.S. farms, with machinery, livestock and cash making up the balance. So what if these farmers get into a cash flow bind? They are forced to sell land, and if the market is in a downturn, these forced land sales often don’t fetch the prices one expects.