Kohl: Stay Vigilant in Management
Published: Friday, February 21, 2025
Even with mass firings and the threat of a new trade war, a prominent agricultural economist says there's an even bigger threat facing the U.S. agricultural sector.
"The biggest threat that we have in agriculture today is geopolitics," said David Kohl, professor emeritus at Virginia Tech University. "No, it's not the White House. It's around the world."
Speaking Feb. 7 during a seminar in Auburn, Kohl said the U.S. economy is the strongest in the world.
"We're the best economic house in a bad neighborhood," he said.
However, the rest of the world is struggling economically. That means they may not buy as much U.S. agricultural goods.
Europe represents 20% of the world's economy, but Kohl said the three "core" countries, Britain, France and Germany, are in a recession. As a whole, Europe is moving away from green energy policies that encourage solar and wind. At the same time, China and India are building more fossil fuel plants to generate energy.
"The point I'm trying to get across is, this whole green energy movement is getting a backlash," Kohl said.
The U.S., under the Trump administration, is also backing away from green energy.
Kohl said the U.S. ag sector is mixed, with a positive outlook for livestock and a negative outlook for grain and row crops.
"Right now, the grain and row crop industry is really struggling," he said. "We're in a two- or three-year downturn. But if you go to livestock, particularly beef—record times. But I'm going to tell you right up front, the worst management decisions are always made during the best of times."
Kohl said he is concerned that the profits may lead to bad decisions.
"Quick money, quick wealth builds ego," he said. "Slow, steady discipline builds character, resiliency, agility and nimbleness. So, I'm more worried about the livestock industry than I am the grain industry."
Regarding the state of affairs in the U.S., Kohl said the U.S. has a bifurcated economy, with some people doing very well and others, not so well. The ones who are prospering are seeing the benefits of their investments in the stock market, Bitcoin and real estate. The ones who are not as prosperous tend to be employed, but asset-limited and income-constrained. These people are sensitive to inflation, Kohl said.
While the U.S. economy is strong compared to other nations, Kohl said inflation is a growing concern. Three factors—tariffs, immigration and out-of-control spending—are supporting the current inflationary trend, he said.
Kohl said government debt jumps by $1 trillion every 100 days, and the interest on that debt is larger than our annual military budget.
"This is not sustainable," he said.
As farm debts also increase, agricultural lenders are tightening credit for their borrowers.
Farmland values, which have been on an upward trajectory in recent years, may pull back as the ag economy softens. He pointed to a graph showing the link between agricultural exports and land values. He said the two are "tied at the hip."
Other concerns are: margin compression, shrinkage of working capital, concentration in the ag industry and asset value decline for machinery, commodities in storage, and agricultural land.
He told the group of farmers and FFA students to focus on what they can control. The weather, geopolitics, trade tariffs and sanctions are out of their hands. However, farmers can control their risk management plan, cash flow, servicing of debt and other management decisions.
"What you're going to have is increased volatility, and that's why you've got to zero in on your finance, marketing and risk management programs," Kohl said.
He advised farmers to establish written goals, noting that the top 20% of agricultural producers do this. He said farmers should also know their cost of production and know their breakeven prices. Farmers should also develop a monthly or quarterly cash flow plan.
Another important part of having a "management mindset" is developing a transition management plan.
According to Kohl, 21% of American farms and ranches have no "next" generation.
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