If China sneezes, it’s likely an American farmer would say gesundheit.
That’s how interconnected the two countries are, said David Kohl, an agricultural economist who spoke Tuesday morning before a roomful of farmers, bankers and Future Farmers of America students from several districts at St. John’s parish hall. The seminar was sponsored by Community National Bank.
From his travels across the world as an agricultural consultant, Kohl, said today’s world “is humbling,” by its very nature of being so diverse, and yet so connected.
To effectively compete and understand today’s agricultural market, farmers need to be adept in business management, communications, new technologies, financial management and — most importantly — critical thinking.
Today’s farmers have been riding a wave of “10 solid, good years of asset-rich, cash-rich farming,” Kohl said.
Whether this “super cycle” continues depends to a large degree on what happens to the emerging economies in the BRICS nations — the countries of China, Brazil, Russia, China and South Africa, he said.
It’s not likely China, the second largest economy in the world after the United States, will continue its economic growth rate of 10.8 percent, Kohl said.
Kohl uses an 8-5-3 rule to determine the BRICS nations’ impact on the U.S. agricultural sector. As long as their combined GDP growth is 8 percent or above, demand for U.S. grain and row crop production will be robust.
If it declines to 5 percent, a reduction by 20 percent in commodity prices can be expected, and “Unfortunately, your costs cannot be adjusted quickly enough to absorb such a loss,” Kohl warned.
If down to 3 percent, denoting a recession, then a “correction” in commodity prices would be needed.
Kohl said a more realistic expectation is that China’s growth will “slow” to a 7 percent rate.
What happens in Europe also affects the U.S. farmer, Kohl said. A hobbled Europe, because of the financial crises in Greece and Italy, will impact the economies of China and Asia, which are linked to the recent success of crops in the upper Midwest. Europe is China’s biggest purchaser of consumer goods, followed by the United States.
KOHL WARNED of “black swans,” or unusual events that can cause havoc. The price of oil is foremost.
“Oil was $106 a barrel this morning. It should be $80,” he said.
