Economist: Farms have changed significantly over past three decades

Farm income is down, according to Dr. Bob Young, chief economist for the American Farm Bureau Federation. Young spoke at the organization’s Jan. 8-11 annual convention.

He and other members of the AFBF economics team gave an overview of the farm economy and speculated on what it could look like in the near future.

“We have actually brought on board almost 200 million acres in agricultural production worldwide since 1990,” Young said. “That’s almost the size of U.S. agriculture.”

The demand side of the equation also has increased substantially, Young said, and the tremendous increase in supply and demand has led to price volatility.

Dr. John Newton, AFBF director of market intelligence, explained that supply has continued to outpace demand, putting pressure on prices. The biofuel boom is over, and livestock is flat, Newton noted, so international trade is taking on increasing importance in the global economy. Agricultural exports were $133 billion in 2015, with more than 50 percent of U.S. agricultural trade coming from Mexico, Canada, China and Japan.

In Virginia, farmers are competing more and more in a global market, said Tony Banks, a commodity marketing specialist for the Virginia Farm Bureau Federation. “In particular, Virginia poultry, soybean, tobacco and dairy prices are affected by foreign demand and currency exchange rates. Just like the weather, these market influences are out of the farmers’ control.”

It is key, Newton said, “to recognize the market we are now in, think about how we can make effective marketing decisions and see the marketing opportunities when they become available. It’s a new paradigm. The golden age of ag income is over.”

Katelyn McCullock, AFBF economist, said that at the farm level there are three basic “operational mantras” to cope with falling prices: maximizing revenues, minimizing costs or minimizing volatility. But she noted that there are things all businesses can do without worrying about price.

“Every operation, regardless of what industry you are in, can look at genetics and technology,” she said. “We are often focused on more production and higher yields, and that is important. But maybe in this lower-net-income economy we should be focusing on efficiency. How can we get the same production with lower input costs?”

Banks added that farmers need to find ways to maximize their margins, re-examine their enterprises for profitability and “adjust accordingly to match their cash flow, resource efficiency and farming operations.”