Predictions aren’t always pretty; they can be downright harsh. But in the end, they are just guesses. After all, there is no crystal ball locked in a room somewhere with guaranteed accuracy.
So, predictions and outlooks are educated estimates. They are neither good nor bad, just informative.
Folks in agriculture are pretty dedicated about looking ahead, trying to figure out how industry factors might unfold and influence their businesses. As pork producers, you have one such opportunity every quarter as USDA releases its Hogs and Pigs Report.
However, producers are not nearly as committed to reviewing factors outside of their industry that impact their businesses. While no one needs more data or information to monitor and evaluate, agriculture and consumer economics are directly intertwined. After all, consumers depend on you for food, and you depend on them for your business.
Take, for example, Hurricane Katrina’s effects. I have raised the issue of its long-term impact previously. Yet it rarely sinks in until people see or feel a direct effect, which is now surfacing in the form of high winter heating costs. In a recent chat with a young man about his eye-opening energy bill, his response was: “Guess I won’t be eating out this week.”
Katrina’s cost to the
There’s a lot of talk about the housing bubble, notes David Kohl, agricultural economist at Virginia Tech. Housing prices have doubled in the past five years; 27 percent of all home sales are investments, intended to be “flipped”; and many home loans are interest only.
Add to that the fact that
“Consumers today, are in the situation that agriculture was in the 1970s,” says Kohl. Of course, it lead to significant changes.
There are economic and psychological thresholds that cause people to change patterns—just ask General Motors. At $2.50 a gallon, gas prices got people’s attention; at $3, gas consumption started to decline; at $3.50, people started shopping for smaller more fuel-efficient vehicles. GM is now pulling back on SUV production, even retrofitting factories to produce mini versions.
Add it all up and consumers will feel pressure, the question is when and how much will they change spending patterns. Naturally, people have to eat, but there’s no shortage of substitutions—at least in developed countries.
Changes in consumer spending levels can and will impact farm income. Which is why you dare not turn a blind eye. Still, there are a few things you can do.
Know your production costs, and keep your debt/asset ratio at a reasonable level.
Analyze all asset investments, making sure that you are getting the most out of your human and capital assets before investing in more.
Manage for the extremes, which means having cash and working-capital reserves.
Invest in enterprise analysis. Research shows that those who do, increase profits by 2 percent.
Grow earned net worth by 6 percent a year.
Focus on efficiency first, then growth.
Do detailed strategic planning. This can double your rate of return, says Kohl.
Look for new ideas. Early adopters and trendsetters earn 1.5 times more than their counterparts, he adds.
Invest in management. A strong supervisor can elevate other employees’ work.
Today, you face higher economic peaks and lower economic valleys than your predecessors faced. To position your business to better weather that course, you have to look beyond your business, monitor consumer spending and better understand the macro-economic climate as well.