[Source: Agri-Marketing, 11.2015 | Keywords: Economy, Downturn]
It’s no secret that the U.S. ag economy is in a downturn. But what many ag marketers donít know is that the economic slump presents a wealth of opportunity ñ both for farmers and agri-business.
Coming off five consecutive years of net farm income nearing $100 billion, 2015 will be the first year to see a sizable drop in net farm income to a predicted $58.3 billion, according to the USDA.
Low commodity prices have put the brakes on the ag economy, creating uncertainty and hesitancy among farmers and agri-marketers.
Why the Downturn?
It’s all about supply and demand. Carry-over inventories of corn and soybeans from 2014 to 2015 were high due to strong yields and reduced exports.
We spoke to Richard Brock, president of Brock Associates, publisher of
The Brock Reports, to better understand the slump.
“We’re on the downward side of a cycle,” said Brock. “It’s being compounded by the currency devaluation of China and Brazil.”
The value of the U.S. dollar has strengthened against other currencies. Our exported commodities cost more, so purchasing countries are turning
to Brazil, Argentina, Russia and Ukraine to purchase cheaper corn
and soybeans.
Good News for Farmers
“Although the outlook appears gloomy, there are a number of positives for U.S. agriculture,” said Dr. Steven D. Johnson, Farm and Agriculture Business Management Specialist with Iowa State University’s Extension Service. “Energy prices are lower than we’ve seen in some time. This translates to lower fertilizer prices. Livestock producers have benefited from lower feed costs and ethanol production continues to be strong in many states as well.”
He added, “Another positive is that the debt-to-asset ratio for most producers remains historically low. And interest rates remain quite low, comparatively speaking.”
Brock agreed. “In a study we did this spring, 32% expect to cover all their expenses out of their own bank
accounts in cash through 2016, without borrowing any capital. This is not
going to be a devastating cycle like the one we saw in the 1980s, because we don’t anticipate the drop in farmland values. Farming is still a good long-term investment.”
He added, “Compared to countries such as Argentina and Brazil, we have an incredibly strong and efficient crop and livestock transportation and processing capability.”
Good News for Agri-Business
“For the good managers in farming and agri-business, this is an absolute heyday,” said Brock. “Competitively, any agri-business firm has more of an advantage in picking up a new client in this kind of environment.”
To improve your marketing during this downturn:
Get Creative. “Everyone has to be more creative now on how they sell, because farmers still have money,” said Brock. “Any agri-business that can show a farmer how they can improve his efficiency is going to do well in this environment.”
Sell Technology. “The technology companies are still going to do well, because farmers have to be more productive and efficient,” said Brock.
Have a Skilled Sales Force. Brock said, “Companies that have salesmen who just take orders will have problems. Order takers are not going to do well in this environment. Good salesmen are going to do super.”
Get More Digital. Here at Paulsen, we’re seeing extraordinary growth of content-driven digital advertising. These tactics provide information and advice for producers seeking solutions. We’ve also been helping more clients create inbound marketing programs integrated with CRM tools that streamline the sales process.
Build Relationships/Trust. At the end of the day, people buy from people. The relationships you have with your customers are your most valuable asset. Earned trust is capital that can be spent in tough economic times.
In Summary
Preparing for ups and downs is critical for agri-businesses. No matter what the economy is doing, focus on building relationships and providing solutions to your customers’ problems. And, recognize that a down market presents enormous opportunities. To read a longer version of this article, please visit Paulsen.
Breaking It Down
Here’s what farmers are up against. The USDA’s economic Research Service made this forecast for 2016 corn production costs, per acres.
Let’s do the math: 168 bushels/acre (USDA 2015 nationwide average corn yield projection) and a cash corn price of $3.50/bu provides a return of $588.00 per acre, which means a loss of $81.06 per acre. This equation factors in land rent, which is the highest cost. For farmers who own their land, the picture is dramatically different.
Item / Cost per Planted Acre, 2016
Seed, $102.56
Fertilizer, $135.28
Chemicals, $26.56
Custom Ops, $19.07
Fuel, Lubes, $25.74
Repairs, $26.89
Interest, $0.86
Land Rent, $181.36
Labor, $25.40
Machinery, $104.91
Gen Overhead, $20.43
TOTAL COSTS: $669.06