New groups of farmland owners are slowly edging into agricultural production, and they will require agricultural consultants to offer services using new business approaches.
Taking a futuristic view of how agricultural customers are changing and the issues that have to be addressed in finances and farm policy were major topics talked about by David Kohl, Ph.D., agricultural economist, and John Blanchfield, with the American Bankers Association, during the American Society of Agricultural Consultants annual meeting in Washington, D.C., at the end of October.
Kohl sees a change from ownership by little old ladies who outlived their husbands. He sees a group of technologically savvy businessmen and businesswomen taking direct responsibility for farming operations, and these will be entrepreneurial owners. They could easily be heirs who have been successful in non-agricultural businesses and decided to return to manage farming operations using their strong business knowledge to have a different focus than a traditional commodity grain farmer or livestock producer.
Kohl is a professor emeritus from the Agricultural & Applied Economics Department of Virginia Tech University. He is a futurist economist always looking ahead using the past as proof of trends. He also is part owner of an organic dairy that distributes products in southeast coastal states. He can be seen as similar in some ways to the group of ag entrepreneurs the described in his presentation.
FUTURE AG ENTREPRENEURS
The ag entrepreneurs he described will be business savvy on how to obtain startup working capital, and these landowners will be looking to expand. “They are going to farm multiple counties, multiple states and sometimes multiple countries,” Kohl said.
The business enterprises will often be multiple family entities, but also include non-relatives as investors because the business concepts will be capital intensive and require investment money. Some of the enterprises will own businesses other than production agriculture. They could own a John Deere dealership as well as a hotel franchise, Kohl contends.
These non-agricultural professionals who step into farming in a big way will be what Kohl calls “energetic lifelong learners.” They are persons who keep looking for opportunity and “thinking young” and are progressive whether they are 50 years old, 60 years old or even older. Without a doubt, they will use the latest technology.
“One of the things, you need to do as consultants is put together teams to provide solutions with these customers. This is definitely what is coming at you with the 270,000 [largest U.S. farms],” Kohl said.
Consulting teams will need to be confidants for these entrepreneurs and sometimes try to slow them down. Kohl contends, “They will need to slow down, and they don’t want to slow down. These folks will be very vulnerable in the next agricultural downturn.”
The idea of interdisciplinary teams as one-stop shops to work with farmers of all sizes was a topic addressed on more than one occasion during the ASAC meeting. It was first discussed in relation to working with livestock operations such as hog producers and dairies. The team approach with professionals of various responsibilities and skills working together also came up for crop production
by consultants working in California, with all its regulatory guidelines, and nationally as ag retailers move toward providing a full-spectrum of services, including financial consulting.
Kohl contends that consultants, providing whatever services, will need to use all their psychological skills in dealing with the new groups of landowners coming into agriculture. There are several emotions that are and will be common with new landowners, and number one is greed.
“I will tell you that greed is alive and well. This grain price super cycle that we’ve had since about the year 2000 has shown us greed,” he said. A consultant can be the one working with the landowner to “bring objectivity into the greed.”
Another significant emotion is anxiety, and Kohl sees this as a good emotion. “What you’ve got to do as a consultant is relate to these people, lay out scenarios, show objectivity and share with them some of the potential risks. Anxiety is one emotion as consultants you can build upon,” he said.
FOCUS ON 270,000 FARMS
Prior to Kohl, Blanchfield noted the farming operations that must be the focus of ag consulting. Using the latest Department of Agriculture numbers, he noted there are 1,344,000 small farms whose operators report they are retired or they had a major occupation other than farming. There also are about 577,000 intermediate farms, or those with sales less than $250,000 but report farming as their major occupation.
And finally there are the approximate 270,000 farms with sales greater than $250,000. Blanchfield pointed out that these 270,000 farms account for 80 percent of the U.S. farm production and owe approximately 60 percent of all farm debt.
Blanchfield, who is chairman of the ABA Center for Agricultural and Rural Banking, said Farmers Home Administration spends a lot of time working with intermediate size farms. Also, the 577,000 are good customers of rural banks. “They are not real interest-rate sensitive.
What they want to know the most is ‘can I get the loan.’
And yes, they can. They don’t ask for much,” Blanchfield explained. Basically all the agricultural companies in the U.S. are putting the most effort into chasing the 270,000 to be customers. “Isn’t that incredible how consolidated this industry has become,” he said.
“The scale of these farm deals has gotten so big,” Blanchfield noted. “Rural banks are going to be hard pressed to finance an operation that needs $100 million. That is a real challenge to our business model of local deposits and lending to local businesses.”
These big operations are playing in a global market to earn return on their investment. As Kohl said, “We’ve got to think globally and bring it down locally.”
To go along with his global sound bite, he said, “You are talking about big data in your businesses as consultants. Your key is to take this mound of data and do something with it. We are drowning in data and starved for organized information.”
He also noted, “Any time an asset crashes, you’ll have six years of corrections. It is called six years of economic whitewater.” He used the stock market crash of 2007 and the stock market improvement in 2013 as an example. He also said the farm real estate crash of 1981 resulted in a comeback in 1987.
“You basically have to help your client through whitewaters. All six years are not going to be bad years, but it usually takes about six years. And if they have to sell assets during that downturn, they will be discounted 10, 20 or even 40 percent; it was 38 percent on average during the farm crisis with it being higher in some sections of the country and lower in other sections.
Blanchfield talked about near-term “pain makers” other than what Kohl mentioned. In short, some of the pain makers that farmers and the ag industry should expect include: conservation compliance to qualify for crop insurance, interest rates rising and farmers and ranchers having trouble paying half the interest that people paid in the 1970s, the Washington farm lobby being less able to push through legislation supportive of ag, the lack of an economic safety net for farmers when a crisis hits, and farm real estate prices hitting a wall as commodity grain prices drop to half of their recent peaks.
“While you are consulting with your clients, whether you are an agronomist, accountant or crop insurance rep or whatever, just ask them the question, ‘What are you doing to hedge your interest rate risk?,’” Blanchfield recommended.
He concluded by saying, “As consultants, your job is to look at sickness, to put together information of patterns and non-patterns and be able to provide your client with information that is factual, true and actionable.”