As fuel and feed prices continue to skyrocket, producers struggle to find black in a sea of red on paper. With input costs increasing, even higher prices for farmers and ranchers don’t guarantee profits. In a sea of uncertainty, Bob Schmidt, North Business Lending senior vice president for Farm Credit Services of America; Steve Dutenhoffer, regional president for Dacotah Bank; and Bob Rutten, ag loan officer for State Bank of Madison, MN; offer their advice and insights on interest rates, risk management and how young producers can get into the business.
“We have sustainable land value analysis data that indicates there won’t be a panic arise in the agriculture community like there was in the 1980s; 73% of all land purchases in 2010 were made by existing farmers, with the investor market slowing significantly. As land prices go up, capitalization goes down. No matter where you go in South Dakota, there are opportunities to diversify your production agriculture plans — whether that be with wildlife, fisheries or hunting opportunities,” Schmidt says.
Although land prices continue to rise, interest rates remain low, and therein lies the opportunity for producers.
“We are seeing interest rates that are historically low, not by rate but by duration. The federal government has kept it low for a long period of time. The last time rates were brought down -- in 2008 -- people were worried it would quickly spike back up, or that we might have a double-dip recession. What we have found is a slow, steady interest rate that I believe will continue on the same slow, steady pace as it moves upward. Federal fund futures show a probability of a rate increase in May 2012. I know that sounds like a long way down the road, but when we have to pay for this nation’s growing debt, we will be competing with the government for funds,” Rutten says.
Dutenhoffer weighed in on the nation’s interest rates, as well. “If interest rates do go up, interest projection will probably be the smallest cost on an operation, compared to feed and fertilizer costs and cash rent. Interest rates have nowhere the impact on ranchers that input costs have,” he says.
Yet, the biggest challenge for agriculture will be identifying the next generation to take over the job of feeding the world.
“Only about 3% of the world has really good farm ground. The size of farms in the U.S. has almost doubled. We need young producers today more than ever before. We missed the Baby Boomers because they saw how tough things were in the 1980s and experienced how bad the crash was. This next generation wants to be in production agriculture,” Rutten says.
Schmidt agrees and says it will be important to help foster these young people as they transition into agriculture careers.
“Production agriculture is a great career path. We have to appeal more to young people in our business. We have to be diligent in our process and look at recession challenges. We have to push the envelope in getting a young person into production agriculture. We are looking at developing networking groups to help those young people who are interested. I would like to see tax laws change, so that it’s easier to transfer assets. The average age of ranchers who are retiring is getting older and older. These ranchers went through a lot of challenges over the years, and that’s hard to let go,” he adds.
Dutenhoffer offers his advice for every rancher, big or small, beginning rancher or seasoned veteran.
“Know your cost of production and know your profit margin. I have never seen a rancher fail who has taken in a profit at the end of the year. Get a plan, know your risk and take advantage of available programs. We need young people in production agriculture, and that can be in non-traditional ways, too. Get creative; build your network,” he says.
What are some lessons you have learned over the years? What’s the best advice you have to offer a young person in agriculture?