The outlook for the 2016 farm economy is a lot different than it has been for the past few years. For many farm operations, 2016 will look more like 2003. That is because the last few years have been an aberration, says Dave Kohl, Virginia Tech ag economist. He says the days of strong global demand, a weak dollar, and a growing ethanol sector are gone for a while, “The period 2016 through 2020 is going to a reset; in other words, we will be going back to net farm income levels we saw in the 2002 to 20036 years.” He said the adjustment really started in 2013, but we have not really felt the impact until now.
Kohl says farmers will have to address three critical areas of their operation in order to adjust to the new normal, “One is machinery costs, another is family living expenses, and the third is land costs.” He said 2016 will the year of negotiations as tenants and land owners have to renegotiate leases that are more in line with the farm economy and allow farm operators to be sustainable. “Some of these landlords are going to have to give in order to set up a win-win relationship that lets operators survive,” said Kohl.
While many operations are in good shape and will be able to make the adjustment, Kohl says having a plan for the next few years will be necessary. He urged farmers to keep an eye on their operating capital and try and keep it close to 50%, “Equity does not pay the bills. Cash flow, profits, and working capital is that is critical are going to be the three key elements that keep a farm going during the time period.”
Hoosier Ag Today will help you with that planning process with some specific seminars at the IN/IL farm show in Mid-December. Watch for details.