Using a racetrack analogy, it's hard to imagine that we've already reached the 2024 quarter mark. My extensive travel and involvement with numerous groups this winter has yielded many insights from the road. Here are some quick perspectives.
From 2013 to 2020
The agricultural industry is likely to enter an era in which profit margins will become even tighter and the economy will become extremely unstable. This timeline has similar characteristics to his post-commodity supercycle era from 2013, just before the pandemic, to his 2020. The difference this time is that costs, capital needs and interest rates are higher and much more resilient to change. This puts pressure on profits and requires a “best of breed” business and financial management strategy.
Burning working capital
The other day, a producer said he had accumulated $1 million in working capital and cash reserves. Last year there was an operating loss and the reserve fund decreased by one third. He said some difficult decisions need to be made to maintain liquidity levels so that in 2024, the company will not have to use equity capital for refinancing to cover working capital needs.
farmland value
As competition between bidders (often two) increases, the value of farmland in certain areas has skyrocketed. Overall, a softening of the land market can be observed. However, land remains in limited supply in some areas where there is sufficient demand, resulting in the need for land price recovery plans. Most individuals who purchase land are growing their businesses with cash, working capital, and capital reserves to finance the purchase.
make you a millionaire
The green energy movement is interesting nationally. Some producers have suggested that companies promise to make you a millionaire overnight if you sign up now. I've heard this before. When considering any opportunity, make sure it passes the financial and business “sniff test.” Is the opportunity aligned with short- and long-term goals? What are the unanticipated financial and non-financial impacts? In today's economic environment, any new program must be sustainable. In order to do so, it must be profitable, or profitable, without heavy subsidies from the government.
Debt and the global economic slowdown
Major factors, such as a slowing global economy among trading partners and rising debt among governments, businesses, and households, will need to be closely monitored for the remainder of this year and beyond. Will the decline in asset values occurring in China spread to other parts of the world? Can we continue to increase the US federal debt by $1 trillion every 100 days? Perhaps both will continue, but debt growth is not sustainable.
