Navigating Dairy Finances: Building Resilience for Turbulent Times Pays Off Big
Source: The DairyNews
In the realm of dairy finance, uncertainty looms as a constant companion, warns David Kohl, PhD, Professor Emeritus in Agriculture and Applied Economics at Virginia Tech University. At the recent Ag Outlook 2024 conference hosted by rural lender Hills Bank in eastern Iowa, Kohl painted a picture of the current agricultural landscape marked by low commodity prices, soaring input costs, and escalating interest rates, all squeezing margins after years of profitability.
Global economic indicators further compound the challenges, with recessions gripping major economies like China, Great Britain, and Germany. Moreover, the upcoming year will witness pivotal national elections in countries including India, Mexico, Russia, and the United States, potentially reshaping global trade dynamics.
With one-fifth of U.S. net farm income reliant on exports, any disruptions in trade spell trouble for American farmers, Kohl emphasized. Notably, the U.S. has slipped to a "secondary supplier" status in the world market, with Asia increasingly turning to the southern hemisphere for trade before considering American offerings.
Kohl's prescription for weathering these stormy conditions echoes meteorologist Eric Snodgrass: "Don’t be scared, be prepared." Foremost among his recommendations is the accumulation of cash reserves, with an ideal target of 25% or more of annual expenses. Highlighting the disparity among farms, Kohl underscored that the top 20% boast an average of 44% in cash reserves, while the bottom 20% hold a mere 11%.
"Earned equity doesn't secure loans," Kohl stressed, emphasizing the vital role of cash reserves in sustaining operations during lean years. To avoid financial complacency, he advocated for frequent financial assessments, suggesting quarterly or even monthly evaluations rather than the annual tax-time check.
Beyond financial preparedness, Kohl offered insights into upcoming trends, including the increasing involvement of females in U.S. agriculture, gradual declines in interest rates, and the evolving landscape of green energy. He cautioned against "greenlash," a backlash against green energy initiatives witnessed in Europe, which could gain traction in the U.S.
Looking ahead, Kohl advised leveraging the expertise of trusted advisors and maintaining a focus on fundamental principles. Just as a successful sports team hones its skills through rigorous practice, farming excellence demands dedication to goal-setting, planning, performance benchmarking, cost monitoring, and continuous improvement across all aspects of business and personal life.
In essence, being prepared for the rigors of the dairy industry isn't just prudent—it's essential for thriving in an increasingly turbulent economic environment.
With one-fifth of U.S. net farm income reliant on exports, any disruptions in trade spell trouble for American farmers, Kohl emphasized. Notably, the U.S. has slipped to a "secondary supplier" status in the world market, with Asia increasingly turning to the southern hemisphere for trade before considering American offerings.
Kohl's prescription for weathering these stormy conditions echoes meteorologist Eric Snodgrass: "Don’t be scared, be prepared." Foremost among his recommendations is the accumulation of cash reserves, with an ideal target of 25% or more of annual expenses. Highlighting the disparity among farms, Kohl underscored that the top 20% boast an average of 44% in cash reserves, while the bottom 20% hold a mere 11%.
"Earned equity doesn't secure loans," Kohl stressed, emphasizing the vital role of cash reserves in sustaining operations during lean years. To avoid financial complacency, he advocated for frequent financial assessments, suggesting quarterly or even monthly evaluations rather than the annual tax-time check.
Beyond financial preparedness, Kohl offered insights into upcoming trends, including the increasing involvement of females in U.S. agriculture, gradual declines in interest rates, and the evolving landscape of green energy. He cautioned against "greenlash," a backlash against green energy initiatives witnessed in Europe, which could gain traction in the U.S.
Looking ahead, Kohl advised leveraging the expertise of trusted advisors and maintaining a focus on fundamental principles. Just as a successful sports team hones its skills through rigorous practice, farming excellence demands dedication to goal-setting, planning, performance benchmarking, cost monitoring, and continuous improvement across all aspects of business and personal life.
In essence, being prepared for the rigors of the dairy industry isn't just prudent—it's essential for thriving in an increasingly turbulent economic environment.
