Mike Nohavec farms about 700 acres of corn and soybeans west of Crete, Neb., but he knows his success depends on countries thousands of miles away.
The importance of markets in countries such as India and China was driven home at a recent conference for young and beginning farmers and ranchers sponsored by Farm Credit Services of America in Omaha.
The cooperative serves agricultural producers in Nebraska, Iowa, South Dakota and Wyoming.
“We are in a global market, in every aspect of agriculture,” said Nohavec, who sells his crops at a local cooperative for shipment primarily to California, Arizona, Mexico and China for use as livestock feed.
David Kohl, professor emeritus of agricultural and applied economics at Virginia Tech, told Nohavec and his wife, Amanda, and about 40 other couples that farm exports were one reason the Midwest escaped the worst effects of the latest recession.
The middle class in the BRIC nations — Brazil, Russia, India and China — is growing. Experts say one of the first things people do whose incomes improve is to spend more money on food.
But if those economies falter, the Midwest and the rest of the world could fall into a double-dip recession, he said.
“The key is China and the Asian nations,” Kohl said. “If they grow, you will do well. But a less than 3 percent growth rate and they are in recession, we have a worldwide double-dip and the collapse of commodity prices.”
Other tipping points into a second recession could be a shock to oil prices, a natural disaster, changes in tax laws or a terrorist attack, Kohl said.
Any of those events could be a “black swan,” a high-impact, hard-to-predict event that could send the global economy into a tailspin, Kohl said.
The U.S. debt and uncertainty about taxes also are hurting economic growth, Kohl said.
“We're deleveraging and locking up,” he said. “That debt is a ball and chain to us.”
Creighton University economics professor Ernie Goss, who wasn't at the conference, said the Midwest also fared better than other parts of the U.S. through the recession because the housing industry here was less inflated and community banks made fewer lending mistakes.
Goss agreed that the BRIC nations are important to U.S. agriculture.
A second recession could occur if those economies soften and some other event happens, such as President Barack Obama fully restoring the taxes on income, dividends and capital gains that the Bush administration cut, Goss said.
“Keep those tax cuts in place at least for a couple of years,” Goss said. “This is no time to be raising taxes.”
Nohavec, 35, said he and Amanda, 31, have sold about $150,000 in crops, along with some cattle, in each of the last four years. Their annual net income from farming is about $45,000, he said.
Amanda also works 20 hours a week as a secretary in a law office in Crete. The couple have three children age 6 and younger.
Nohavec, who has a bachelor's degree in agricultural economics from the University of Nebraska-Lincoln, said he keeps a tight rein on spending. Their assets exceed their debts.
“I do my best to operate with cash. I try to keep my operating loans as low as possible,” Nohavec said.
Those attributes are important, Kohl said. Farmers and ranchers should be prepared for volatility over the next few years in commodity prices, taxes and even land values, Kohl said.
A strong balance sheet with lots of cash will be needed to weather the storms, he said.
“What could soften land values and cash rents? Lower commodity prices for two or three years in a row, in part because farmers always hope things will be better next year.”
The federal government needs to raise money, and farm subsidies could be reduced, he said. Local taxes are hitting land values, too, Kohl added.
Solid managers of small, medium and big farms can do well, however, Kohl said.
“There will be opportunity for midsize farms with modest debt levels. When you make money, stash your cash. And you'll need to get a lot of enjoyment out of balancing your business and lifestyle. Bigger is not better: Better is better,” he said.
Local, natural and organic farming has its place, but the need to feed the world means not everyone can turn to that model, Kohl said.
Kevin Anderson, a 34-year-old who ranches with his wife, Rosemary, near Whitman, Neb., in the Sand Hills, said he has paid too little heed to the importance of the global community. “And I think people are really going to have to start paying attention.”
Rosemary said she and her husband hold more in assets than debts, but they always want to manage more efficiently.
Tony Birkenholtz, 32, of Baxter in central Iowa, said it's good the BRIC is doing well.
“But so many of us are not doing so well,” with rising debt and slow economies in the United States, Europe and Japan, he said.
Nohavec said he expects U.S. agriculture to be profitable in the next two years. But that could change with higher oil prices, higher taxes, tighter regulations or faltering exports, he said.
Using profits to prepare for possible downturns is important, he said.
“My experience is after a few good years in a row, they will be followed by bad years.”
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