Dr. David M. Kohl - Farm Management. David M. Kohl Today’s Speaker Department of Agricultural and...
Transcript of Dr. David M. Kohl - Farm Management. David M. Kohl Today’s Speaker Department of Agricultural and...
Today’s SpeakerDr. David M. Kohl Department of Agricultural and
Applied EconomicsppVirginia Tech,
Blacksburg, Virginia g, g
Dr. David M. KohlProfessor Emeritus
Agricultural and Applied EconomicsVirginia Tech
Blacksburg, VA 24060Blacksburg, VA 24060(540) 961-2094 (Alicia Morris)
(540) 719-0752 (Angela Meadows)e-mail: [email protected]
Weekly Website Columns:
Ag Globe Trotter: www.farm-credit.com
Road Warrior of Agriculture: www.cornandsoybeandigest.com
Lender Economic Planning Environmentg
economic change- rapid & abruptquick historical view since WWIIeconomic moderationvolatility at extremesdead cat bounces /false recoveriesdead cat bounces /false recoveriesreprioritization and focus
2009 Views from the Road
livestock / protein industrydependent on real estatethird party / counter party riskp y p ynon-farm incomelenders rationing creditlenders rationing creditforestryhousing & export markets
Century of Super Cycles
Commodities Boom 1915-17 1950-57 1973-74 2003-08
Common Characteristics:Commodities Boom 1915-17 1950-57 1973-74 2003-08
Rapid Global Real Growth (average annual % h )
N/A 4.8% 4.0% 3.5%
% change)
Conflict & Geopolitical Uncertainty
First World war Korean war Yom Kippur & Vietnam wars
Iraq conflict
yInflation Widespread Limited Widespread Limited
Significant Infrastructure
First World war Postwar reconstruction
None ChinaInfrastructure Investment
reconstruction
Centered on Metals, agriculture
Metals, agriculture
Oil, agriculture Oil, metals, agricultureg g g
% Increase in Prices (previous trough to peak)
34% 47% 59% 131%
Y f Ri i 4 3 2 5Years of Rising Prices Prior to Peak
4 3 2 5
Source: World Bank
Projected World Growth
Germany 0 8%
Iceland 9 3%
U S China Japan 0 1%
Canada -0.5% Britain
-1.1% India
-0.8% -9.3%
Russian Fed. 2.3%
U.S. -0.9%
Brazil Mexico
0.4%
China 8.0%
-0.1%
Indonesia 5 4%
France -0.4%
Euro zone -0.6%
1.1%7.3% South Korea
2.7%
3.0% Australia 1.7%
5.4%
South Africa 3.0%
GDP Growth %GDP Growth %2009 Forecast
Source: OECD Economic Outlook No. 84, November, 2008
World Growth
Germany Iceland
U S China Japan 12 1%
Canada -3.4%
Euro zone
Britain -5.9%
India
y-8.2% -3.6%
Russian Fed. 1.2%
U.S. -6.3%
Brazil
Mexico -10.3%
6.8% -12.1%
Indonesia 5.2%
France -4.4%
Euro zone -6.2%
India 5.3% South Korea
-20.8%
Brazil -13.6% Australia
-2.1%
5 %
South Africa -1.8%
GDP Growth %GDP Growth %2009 Quarter Figures
April 9, 2009
Source: www.Economist.com
Alternative Energy
$60 to $100 swings in oil prices$ $$3.50 to $4.00 gasoline- consumer chicken pointoil prices and direction
weathergeopolitical & military riskcurrency exchange ratecurrency exchange ratedeveloping & emerging countries economic status
technology and supply side of equationtechnology and supply side of equationdemand side globally in agriculture
U.S. Farm Real Estate Values
Annual Percentage Change in US Farm Real Estate Values
20.0%
25.0%
30.0% 1910-2008
10.0%
15.0%
-5.0%
0.0%
5.0%
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
$/ac
20 0%
-15.0%
-10.0%
Source: Dr. Steve Isaacs, University of Kentucky
-20.0%Year
Business Cycles by the Numbers
Months11 economic recessions58 business expansions86 Great Moderation Theory expansions7 Great Moderation Theory recessions106 d i P l V l k106 record expansion-- Paul Volcker 120 all time record expansion -- Alan Greenspan
Kondratieff Wave TheoryRolling recessions of Post WarRolling recessions of Post War
Signs & Issues of anEconomic Turnaround
housingcopper pricesgovernment debtgdeflation / inflationinterest ratesinterest ratesother
Disconnect Between Borrower & Lender Views on Ag Economyg y
I have equity. Why can’t I get a loan?all banks received TARP fundsall banks received TARP fundsmore borrowed money will fix the problemborrowers often recognize the problem too lateborrowers often recognize the problem too latelenders delay taking action because they are “too busy”yfarmers & ranchers feel they are “different”producers use the economy as an excuseproducers are too busylenders think globally, but producers think “one t k”track”borrowers say, “Why should I have to provide detailed information?”detailed information?pricing- why can’t I get the low rates?
How Lenders Contributed to the CrisisContributed to the Crisis
couldn’t make a bad loantoo growth orientedtoo growth-orienteddeals became more leveraged and complexunderwriting was thinnerunderwriting was thinner
covenant “lite”over-reliance on non-recurring incomeo e e a ce o o ecu g co efalse sense of security built on real estatelending to new industries with no expertiseg pover-reliance on statistical modelsgot away from knowing the customersoutside entities with contingent liabilities
Famous Quotes in Business & Lending From the Roadg
“If it grows too fast, it’s a weed.”“If you got the dirt you can’t get hurt ”If you got the dirt, you can t get hurt.“Land- they aren’t making any more of it.”“Money is cheap, borrow and expand.”y p, p“Go with this lender, they have cheaper rates.”“I left a lot of money on the table because of a marketing plan ”marketing plan.“Prices and cost are too volatile to plan.”“It’s a new plateau or a new normal.” It s a new plateau or a new normal. “Millionaire on paper but never earned a dollar.”“But, I have a lot of equity in land.”“Got to minimize taxes.”“Be careful of people in silk suits.”
Counter Stress Cracks
trend analysistrend analysisearned net worth / appreciated net worthcommunicationscommunicationsselective on new businessbusiness financial plans with variancebusiness financial plans with variance analysismarketing risk management progressmarketing risk management progresspersonal family living budgetsensitivity on profits liquidity & collateralsensitivity on profits, liquidity, & collateralsell-sell-sellotherother
Educational Needs“Micro”
working capital educationcash flow budgeting & variance analysiscash flow budgeting & variance analysisprofit rule (60-30-10)marketing & risk management (three levels)marketing & risk management (three levels)management succession / estate planningexpansion planning in a volatile environmentexpansion planning in a volatile environmentbusiness plan developmentstrategy & execution of business plansgy pcash to accrual in business monitoringdeferred tax consequences in sale situationsqpersonal finance & investing
Educational Needs“Macro”
understanding government programs & environmental policyinterest rates
deflation / inflationcurrency valuationy
business cycles & the economygeneral mega trendsgeneral mega trendsimpact of global economics on agricultural ind strindustry