Kohl: A Goal is a Dream with a Deadline

Dr. David M. Kohl, Virginia Tech Professor Emeritus, was the capstone speaker for the Ag Credit Building and Protecting Your Farm — Risk Management Series on August 14, 2010 in Perrysburg, Ohio. Dr. Kohl is an energetic and highly engaging speaker. On this day, Kohl was speaking to about 150 beginning and young farmers on the subject of positioning the farm business for the next generation.

David Kohl

Kohl (left) visits with farmers prior to his capstone.

“There will be more business opportunity in agriculture in the next 10 years than anytime in the past 50 years,” Kohl stated to start the capstone session.  But, he cautions that there will be also more opportunity to fail.

Kohl pointed out that there is a movement in America to challenge large agriculture through local, organic food systems. But he was quick to point out that going all local and organic would leave hungry people in this world.  There is a place for organic, but there is still a great need for an efficient food supply and distribution system that requires use of modern technology.

Kohl discussed a few major themes:

  • water will replace oil as a critical resource
  • special interests group will have a big impact (bigger impact) on agriculture and food business models than any politician
  • ADVOCATE! I was very pleased to hear Kohl strongly encourage participants to get on twitter, facebook and advocate!
  • global, global, global; instead of checking weather first thing in the morning, check foreign currency rates

World growth is changing the local face of agriculture, as pointed out by pressure on farm equipment demand due to world growth. Kohl highly encouraged each participant to have a plan for a black swan event (uncertain, unplanned) on a global scale.

The BRIC (Brazil, Russia, India and China) nations account for 18% of the world’s economy and half of the world’s growth. Kohl pointed out that corn and soybeans are doing well because of the BRIC nations demand. But as the BRIC nations go, so go the rest of the world.  This is particularly true with China. If Chinese growth: >9% = good for agriculture prices, 5% = flat for agriculture prices, 3% = world economy suffer and double dip recession.

Short summaries from Kohl:

Oil

Oil is the black swan for agricultural economic health and world economy. Specifically, 80% of farm related expenses are directly related to oil. Since most of the world’s oil is produced in military sensitive parts of the world, it is likely that oil prices will remain volatile, unpredictable.

Land

In 80 of the past 100 years, land appreciated in value. When positioning your business for the next decade, Kohl warns to be cautious of land value growth.  Don’t get caught in the cheap money trap: it is not about ‘cheap money’, it is about the ability to pay money back.

Federal Debt

Due to the size of the federal debt, it is critical for farm producers to give their bottom line a shock test for next year. Examine the bottom line with a 2% increase in rates, then examine the bottom line with a 4% increase in rates. Make adjustments where necessary.

Golden Rules

  1. Working capital needs to be 20-25% for the oncoming generation of farmers.
  2. Position yourself as a margin manager.
  3. Generate $40,000 – $70,000 net. Can the son or daughter come back into the farm? Yes, just be sure you can generate $40,000-$70,000 net.
  4. Your most precious commodity is time management.

Finally, Kohl ended the capstone with emphasizing the importance of goal setting and writing down goals for the farm business and beyond.

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