Working Capital May Make the Difference Between Good Times and Bad
A boom or a bust is possible for 2009.
Lon Tonneson
Published: Dec 4, 2008
David Kohl, one of the nation's leading farm economists, says he doesn't see a boom or a bust for agriculture in 2009.
It could be either.
"It's all up to you," he says.
He says key to success in 2009 will be the amount of working capital you have (at least 25%, but the more the better) and your ability plan for a wide range of scenarios.
The Virginia Tech professor emeritus also says:
· The world's recession could become a "bad to the bone" depression if China's economic growth falls below 3%.
· The Wall Street financial crisis is going to affect agriculture.
· A world recession could push oil under $40 per barrel, even under $30 or $20 per barrel. Ten years ago the price of oil was less than $10 per barrel. Oil prices could shoot up to to $200 per barrel, too. It would take war with Iran, a huge hurricane in the Gulf of Mexico or a terrorist attack with a nuclear bomb to send oil price skyrocketing. Plan to be able to cope with rapid $60 to $100 swings in oil prices, Kohl recommended
· Land prices are due for a year in which values fall. But no one knows how much will they fall or for how many years they might decline. Buying and selling land should be more about your financial situation and your business and personal goals than whether it is the right time to buy land.
· Farm policy will look and feel more like the European Union's farm policy. California's recent passage of Proposition 2, which bans swine and chicken cages and other livestock housing systems, foreshadows the new direction
· U.S. agriculture will be characterized by two types of farms in the future: large commodity producing farms located in sparsely populated areas and smaller, local food producing farms around cities.
There will be opportunities to succeed in both, he says.
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