With the onset of March Madness and the NCAA college basketball tournament being underway we know that spring planting is just around the corner. As a result of the oncoming spring, we are all in process of working with our clients reviewing their Dec. 31, 2017 year-end financials and their 2018 business plans and budgets.
I recently had the opportunity to attend the Professional Dairy Producers Conference in Madison. One of the speakers I listened to there was Dan Basse, economist and president of AgResource Company. After listening to Dan it appears we are looking at another year of the same in regards to low commodity prices and thin margins. Dan mentioned that uncertainty in trade due to negotiations in regards to NAFTA and also tariffs, Brexit, new elections in Brazil and the strong dollar are all playing a part in the volatility and uncertainty in regards to commodity prices for 2018.
Dan mentioned that the world is producing record amounts of food and posed the question of "can the world economies expand fast enough to create enough effective demand to absorb all the production?" For 2018 the world's economies are expected to grow GDP at a 2% to 6% rate, with the emerging countries closer to the higher end of that range. However, one headwind for us to face is that the U.S., because of its strong dollar, is a high-cost producer when it comes to being able to compete in the world market in regards to farm exports.
In regards to the farm balance sheets across the country as an aggregate, Dan stated that asset values along with aggregate debt to this point have remained relatively constant but working capital has been decreasing significantly.
So with that 2018 economic information in hand as we go about working with our clients, we recognize that this year will not be business as usual. Taking time to, in detail, review your clients' financials, risk management, and business plan and then discussing your findings with your clients along with bringing in new ideas that you see from working with other farms will be very valuable. I would encourage your clients and their team consisting of their nutritionist, vet, crop consultant, and accountant, to all think outside the box and that every idea, whatever it may be, in regards to ways to improve margins is worthy of discussion. Also, remember, as we move through these low margin times it is a great opportunity to deepen your bank–client relationships.
Quoting Dr. Kohl, "Banks and bankers must be conservative in the good times, courageous in the bad times and consistent all the time." This is a good year to be a great ag banker. Let's all embrace that opportunity.
Adams is senior vice president – agribusiness banking at BMO Harris Bank, Green Bay and a member of the 2017-2018 WBA Agricultural Bankers Section Board.