Change can offer new opportunities FARMERS WHO take advantage of the changing agricultural environment will discover significant opportunities to improve profitability.
"Change is always stressful," says Texas A&M Extension marketing specialist Mark Waller, College Station, "but change offers a huge opportunity to farmers who manage it properly."
Waller says U.S. agriculture has undergone a significant metamorphosis over the past two decades, from a system with a substantial government safety net and acreage control to one that pushes more responsibility onto farmers. Changes in technology, the world economy and international trade also play important roles in U.S. farm decisions.
"Farmers, by their nature, have to be somewhat optimistic," Waller says. "And there is some basis for their optimism. Prices ebb and flow, but, in the past, improved prices often were tied to a supply shock."
A short crop, for instance, would send prices soaring. Waller says a few years back China became a net importer of agricultural commodities. A short crop in China, consequently, could send prices up.
"But that doesn't happen often."
A shift in U.S. farm policy has created a situation where the ebbs and flows "are more like tidal waves, and they come closer together. We see a lot of volatility.
"Previously, farm legislation included production control through acreage setasides or other programs. The Freedom To Farm act shifted the responsibility to farmers and gave them the leeway to switch commodities as prices fluctuated.
"For the last few years, however, farmers have had nothing to shift to, no incentive to shift from one crop to another, because nothing offered a profit."
Waller says Mother Nature may eventually provide a fix for the supply/ demand dilemma. "But how long before that happens? We may not recover as quickly as we once did because farmers have so few options."
Waller says government bailouts approved in the past few years have provided farmers with "just enough to refinance and enough to stay on a string."
He says farmers also have learned that the "free market can be vicious. As a society, we have not been willing to accept the harshness of the free market. The last farm bill provided much less protection than previous legislation. Farmers must be prepared to take the heat when bad times come."
Continued bad times, however, can damage more than just individual farmers.
"We saw a farm crisis in the 1980s," he says. "As we lose farmers, we begin to lose the agricultural infrastructure (cotton gins, farm supply points, equipment dealers, etc.). The Texas rice acreage decline may put the state's rice industry in that situation. The infrastructure, including rice mills, irrigation companies, canals, etc., are threatened."
Since the 1980s farmers have pushed hard to reduce costs. "Many say they can't cut any more," Waller says. "But we will see a continued struggle to do just that. The global economy will require it. Whether we like it or not, we have to compete in a global arena.
"Being the low cost producer relative to other producers will be essential. The closer to profit or breakeven a farmer can stay during a downturn, the faster he gets back in the black when conditions turn around."
Farmers have to be "as lean and mean" as possible, Waller says. "They have to take advantage of pricing opportunities when they are up and continue to strive for low cost production."
Waller sees signals that farmers may soon experience better prices. "Demand is growing, both in the United States and internationally. The livestock industry is doing wel,l and good demand for meat equals good demand for grain."
He says grain crops for 2000 were "not as big as we originally thought. And we're seeing less competition from China on feedgrains. We expect good export activity this winter and possibly better prices in the spring.
"We don't have as burdensome a supply as we expected this fall and the U.S. Department of Agriculture expects a strong demand."
Waller says the winter wheat crop is a question. Much of it was planted late and no one can be certain what, if any, impact that might have on yield potential. "But if the wheat crop has problems, that will help other grain crop prices," he says.
Waller also says farmers must begin to learn better and cheaper ways to produce commodities. Technology provides the key.
"Producers will need to master the skills necessary to separate transgenic products from other varieties on the farm," he says. "They must produce high quality products then store and deliver them properly. That will be worth compensation."
Waller says farmers will look to niche markets such as organic production, eco-tourism and other enterprises to improve profit potential.
"Not every farmer will solve the financial crisis in the same way. But they must adapt to change and be willing to switch from production management to business management.
"Managing a farm profitably," he says, "is a process, not a goal. The race never ends."