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Great Lakes Expo Examines Market Trends

by Bev Berens

Published: Friday, February 14, 2020

"Your business is like a chess board and chess has a series of moves," said David M. Kohl, the lead speaker who kicked off Great Lakes Regional Dairy Conference last week. "The most important player on that chess board is the queen. Cash and working capital are queen, the most important tool on the farm. It lets you be proactive to economic opportunities."

Kohl shared his interpretations for the next 10 years in agriculture based on current trends, trade and worldwide shifts in economics, consumption, leadership and attitudes.

"One reality that you are going to have to get used to in dairy and business is that things are changing fast and are going to continue to do so," Kohl said.

Low and stable interest rates, along with stable energy, are two positive aspects of today's agriculture climate. Since 9/11, the United States became energy independent in 10 years, 15 years earlier than the goal established post 9/11.

The USMCA trade agreement solidifies the North America economic power block. Canada, Mexico and the U.S. combine to capture 28 percent of the global economy's GDP. Canada is the United States' No. 1 trading partner and Mexico is No. 3. The U.S. leads the world in energy and oil production, Canada is fourth and Mexico is eighth.

Market volatility will be the norm, but the farm business with a good cash position will be able to capitalize on both cost and price sides, suggesting that repeated base hits or small gains will bring financial wins to the business rather than seeking out that elusive home run financial play.

"When you see an opportunity, you must execute it," Kohl says.

As young farmers enter family farm businesses, they bring energy, enthusiasm and a new, tech savvy skill set that, coupled with the older generation's equity, has the potential to bring the farm business to the next level. He cautions the "alpha" personalities who often own dairies should give up some decisionmaking control. If they refuse, the only financial winners on the farm will be lawyers, accountants and tax collectors. 

Kohl's outlook included some big challenges that will have bigger impacts throughout all of agriculture, one being government payments.

"Dependence on government income makes for a passive manager," he said.

Regaining lost markets and staying globally competitive, along with global political posturing and change world-wide will add to market volatility.

Alternative agriculture and consumer demand shifts are gaining momentum.

"It is not the fact that consumer demand has shifted. It is how fast that landscape is changing. Plant-based products are coming at us fast," he said. "You need to be three products and services ahead of the curve."

Lastly, he sees a backlash to consolidation on the horizon.

"Small is going to be the new big," Kohls said. "You can already feel the undercurrent and it is not just in agriculture."

"You will see more change in the next 10 years than we have in the past 70 years. We've got to be looking at what will change in the consumer, and that consumer is going to be a worldwide consumer. Unfortunately, dairy is not lined up with that consumer and is being reactive instead of proactive," squarely laying the blame at the cooperatives' collective doorsteps.

Kohls says that the consumer of the future will spend more on food than on clothes, focusing on good nutrition over cheap food.

A strong business IQ will be the common denominator for success in the upcoming decade of transition. Advisory teams providing a stream of information into the farm business are one size neutral development that will become more common and provide opportunity for success or failure based on management mind set.

At the farm level, there are critical questions to evaluate the farm's financial next steps and success. Know the cost of production by enterprise. Write down business and personal goals. Project cash flows and complete financial sensitivity analysis by cash flowing different scenarios for markets, costs and unexpected events or disasters.

Transition planning is the Achilles heel of the agriculture industry in general, with most farm plans not even engaging in the tough topic. Kohl suggests trying the drop-dead exercise where one name is randomly drawn from all farm owners/managers/partners.

"Talk out what will happen if that person is gone," he said. "Oh, and the dead person is not allowed to speak—they are dead."

Business plans are not concrete and always evolving through the four cornerstones of planning, strategizing, executing and monitoring. Getting better before getting bigger, putting profits into efficiency first, written core values and goals will help the farm business improve in the long run.

"The key is to take action," Kohl said. "Don't try to change more than three things at once but taking action on a few critical issues at a time will make for a successful farm business."

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