mega forces of agriculture & the ceo producer
TRANSCRIPT
Dr. David M. KohlProfessor Emeritus
Agricultural and Applied EconomicsVirginia Tech
Blacksburg, VA 24060(540) 961-2094 (Alicia Morris)
(540) 719-0752 (Angela Meadows)e-mail: [email protected]
Weekly Website Columns: Ag Globe Trotter: www.farm-credit.com
Road Warrior of Agriculture: www.cornandsoybeandigest.com
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Domestic & Global EconomyState of State
● inflection point● government
taxes cap & trade health care other
● Asia/China● standard of living (household income)
USA $49,000 in 2000 & $47,000 in 2010 China $1,090 in 2000 & $3,500 in 2010
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Contrasting Economies
stockpiling food & fuel
QE2Response
inflationdeflationIssue
$3,500$47,000Household Income
35%72%Consumer Spending/GDP
33%92%Debt/GDP
9.6%2.0%Growth Rate
4.4%0.6%Inflation
#2#1Ranking
China (Avis)USA (Hertz)
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State of State -Agricultural Economy
●low interest rates
●volatility●land values “bullish”
●liquidity/equity decline●weather
●regulation/consumers●low value of the dollar
●consolidation●ethanol
●input/cost●Asia/China export
●south/coastal/other●upper midwest/Canada
●livestock/other●crop & row crop
HeadwindsTailwinds
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World Growth
Source: www.Economist.com
U.S.
3.2%Q3
Brazil
8.8%Q2
GDP Growth % Change from Year Ago2010 Latest Quarter Figures
December 9, 2010
Australia
2.7%Q3
Mexico
5.3%Q3
China 9.6%Q3
Japan
5.3%Q3
Indonesia 5.8%Q3
Canada
3.4%Q2
France 1.8 %Q3
Euro zone
1.9%Q3
Britain
2.8%Q3
South Africa 2.6%Q3
India
8.9%Q3 South Korea 4.4%Q3
Germany
3.9%Q3
Iceland
-2.1%Q3Russian Fed. 2.7%Q3
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Global Economic GDP Growth Benchmarks
LocationLocation GreenGreen YellowYellow RedRed
USA >3% 0-3% Negative
Europe >3% 0-3% Negative
Japan >3% 0-3% Negative
BRIC Nations* 8-10% 4-7% <3%
*Brazil, Russia, India, and China
© 2010 by Dr. David Kohl & Dr. Ed Seifried
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Global Economic GDP Growth Assessment
LocationLocation CurrentCurrent GreenGreen YellowYellow RedRed
USA
Europe
Japan
BRIC Nations*
*Brazil, Russia, India, and China
Fill in current status and check green, yellow or red for each region.
© 2010 by Dr. David Kohl & Dr. Ed Seifried
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Oil -“Black Gold”
● Six to eight recessions in past fifty years due to oil● 74% of price of oil – global market value● 70% oil produced military/politically sensitive areas● 60% of fertilizer military/politically sensitive areas● consumers lock up at $3.00 to $3.50 per gallon● consumers shut down at $4.00 per gallon
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Farm & Ranch Land/Real Estate Clock
Increasing
Declining
RapidSlow
Positive
Slow Increase
Positive
Rapid Increase
Negative
Slow Decline
Negative
Rapid Decline
What’s happening in your area?
•High quality land & row crop
•Mineral, oil, water influences
•Competitive agriculture & aggressive investors
•Ag industries in down cycle
•Recreational farm and ranch land
•Urban fringe after bubbles
•Lower quality land
•Ag industries are not competitive
•Older buyers
•Grains & row crops
•Urban fringe/ satellite cities
Stable
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Producers Critical Mistakes When Buying Property
● love property● land and liquidity● money is cheap, it is time to borrow● earns and turns● financial leverage● cash is land locked● deeper pocket syndrome
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The Three Bears & “Big Foot” Balance Sheet
● lower commodity prices sustain input costs
● higher taxation and regulatory reform
● increase short term / long term interest rates
● trade sanctions- global markets- currency disruptions
Hibernating
Awakening
Hibernating
Awakening
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Producer Dashboard Economic Indicator Benchmarks
IndicatorIndicator GreenGreen YellowYellow RedRed
The Conference Board Leading Economic Index® - LEI
Increasing Flat to Decline Decline 0.3% for 3 consecutive months AND
>1% over the period
LEI Diffusion¹ >60% 40%-60% <40%
Purchasing Manager Index - PMI >50 41.7-50 <41.7
Housing Starts (millions) >1.5 1.0-1.5 <1.0
Factory Capacity Utilization >80% 70%-80% <70%
Unemployment Rate 5%-6% 6%-8% >8% or <5%
Core Inflation 0%-2% 3%-4% >4% or <0%
Headline Inflation² 0%-3% 3%-5% >5% or <0%
Oil Price³ ($/barrel) <$50 $50-$100 >$100
Yield Curve4 Steep Flattening Inverted
¹Ten indicators make up the LEI - measures % that are increasing; ²Includes food & energy; ³Consumer’s perspective; 43-Month Treasury Bill rate to 10-Year Bond rate
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Producer Dashboard Economic IndicatorAssessment
Fill in current status and check green, yellow or red for each indicator.
IndicatorIndicator CurrentCurrent GreenGreen YellowYellow RedRed
Leading Economic Index - LEI
LEI Diffusion Index
Purchasing Manager Index - PMI
Housing Starts (millions)
Factory Capacity Utilization
Unemployment Rate
Core Inflation
Headline Inflation
Oil Price ($/barrel)
Yield Curve
© 2010 by Dr. David Kohl & Dr. Ed Seifried
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Ten Characteristics of CEO Producer
● Profitability- (60-30-10)● capital asset structure- (P = O + C + L + M2)
● debt structure- (“relationship lender”)● size, growth- (“If it grows too fast, then it’s a weed.”)● risk management (revenue, cost, interest rates)● earned net worth- (“Better is better before bigger is
better.”) ● managerial skill- capacity vs. skill set- (“40-20-40 people
rule”)● financial numbers, improved business performance-
(“earns & turns”)● monitoring and audit- (“efficient but effective”)● other
Credit: Dr. Mike Boehlje, Department of Agricultural Economics, Purdue University
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Financial & Management Decision Priority Guide
Metric High1 Medium 2 Low3 Your Farm/Ranch
Percent Equity >60% 40 to 60% <40%
Working Capital/Revenue >33% 10 to 33% <10%
Return on Assets >10% 4 to 10% <4%
Balance Sheet
Earned Net Worth/Net Income
>25% 10 to 25% <10%
Operating Expense/Revenue Ratio excluding interest & depreciation
<65% 65 to 80% >80%
Risk Management Plan All components
Some None
Discipline and Execution(% decision making-% interacting-% doing)
60-30-10 33-33-33 10-30-60
For Land Acquisition, Expansion, or Major Capital Expenditures
1 If High in most metrics, and 40 to 50 in the sixth “C,” major changes may be considered.
2 If most metrics fall in the Medium column, and 35 to 39 in the sixth “C,” major changes should be delayed until improvement occurs.
3 If most metrics fall into the Low column, and sixth “C” is below 34, implement a strategy to improve both finance and management systems before making major changes.
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Evaluating the Sixth “C”
RatingArea
10. Balance business, family, and personal issues effectively
9. Communicates the vision and goals clearly and prioritizes focus on day-to-day decisions with global awareness
8. Conveys an organized team culture with synergy that evolves given business and economic conditions
7. Accepts challenges and problems willingly; seeks solutions and execution of strategy
6. Uses a systems approach to total management, I.e. production, marketing, finance, transition, and exit plans
5. Utilizes a strong network of alliances and advisors
4. Has handled adversity successfully in the past
3. Utilizes a written business plan with actions, execution, and metrics
2. Attracts and retains quality people inside and outside the business
1. Is experienced in disciplined management of large amounts of debt, equity, liquidity, and /or profits
Please rate each area from 1 to 5. 1=Poor and 5=Excellent
Total Score Assessment40 – 50: Green Light: Above average on most attributes35 – 39: Yellow Light: Several areas need focus to be successful30 – 34: Orange Light: Focus on improving below average attributes <30: Red Light: Many areas need improvement
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Five Star Philosophy
● HUT principle● “If it grows too fast, then it’s a weed.”● undisciplined pursuit of more● 40-20-40 Rule of people business culture● “Big enough to serve, but local enough to
care.”