"Are you becoming complacent?" asked Nate Franzen, agribusiness division manager at First Dakota National Bank in Yankton, SD, at the South Dakota State University (SDSU) Extension "Cattle Marketing: An Explorative Approach" meeting held June 5 at the Mitchell Regional Extension Center, Mitchell, SD.
Franzen was referring to producers not staying on top of their game and relaxing in profitable times. He offered advice for ranchers to take advantage of during times of great opportunities, as well as some words of caution in managing risk.
"While cattlemen realize some of the most rewarding times in the history of their industry because of unprecedented price levels, they might need to guard against complacency as there are several factors that could threaten that status," explained Franzen. "What if interest rates increased by 2-3 percent? What if the U.S. dollar increased in value? What if feeder and fed cattle prices moderated? What if input costs continue to increase? We have record net farm income; it's easier to make money in agriculture. My experience is the worst mistakes happen when times are good. It's human nature. We relax and let things slide."
Today's agriculture industry has great opportunities for producers to take advantage of.
"The projections are that in the next 20-40 years, we could reach 10 billion people," he said. "Where's all the growth coming? It's coming in developing countries like Brazil, Russia, India, China and South Africa. There's only so much space in the world. The globe has finite resources. A whopping 75 percent of the world is water, 12 percent is mountains, deserts, forest and ice, 6 percent is cities, 3.5 percent is wasteland, and the final 3.5 percent of land is hospitable for food production."
Much of that productive land is found in the U.S.
"We have tremendous potential in the U.S. to feed the world," he said. "Technological advancements are helping us do things more efficiently. In the cattle business, we use better genetics, sexed semen, cloning, pharmaceuticals and improved carcass traits."
Franzen said that it's important to keep an eye on the economics of developing nations.
"Currently there are 400 million (people) in the middle class, projected to go by 1.2 billion by 2020," he said. "What happens when the middle class grows? They have more disposable income. They want to eat less rice and consume more beef. This is good news for cattle producers."
Yet despite the golden opportunities in agriculture, there are also great risks.
"There's also great risks in the industry that we need to be in tune with," he stressed. "U.S. beef exports contribute to 10.6 percent of our market, which has grown from only 1.9 percent in 2004. The big take-home is that exports are becoming a larger part of the equation. All of agriculture is becoming more dependent on exports as we feed a growing global population."
Meeting the demands of this growing population will be a challenge.
"One of the biggest challenges we face is changing customer demands," said Franzen. "Animal welfare issues like gestation stalls for sows or battery cages for chickens. Our consumers want more of a say. They have the power to greatly influence our production methods. For example, the controversy surrounding a scientifically-backed technology like lean finely textured beef took a hit because a reporter decided to put together a sensational story and call it 'pink slime.' Sadly, perception is sometimes reality.
"Our consumers are concerned about the environment and topics like global warming and sustainability. Consumers also have a desire to know the origin of their foods. They want great traceability from gate to plate. I would argue that if our global economy and population continues to grow, the middle class will have more money and become more finicky about their food and how they want it. Our challenge will be how do we meet these demands and efficiently feed the world."
Franzen offered some keys to staying profitable, in good times and bad.
"Manage your balance sheet," he advised. "Paradigms shift, but sound principles don't. Use risk management to survive volatility. Lock in profits all day, every day. Have strong partners. Finally, be a lifelong learner. Attend educational programs and events. Use the Ag Knowledge Center at www.firstdakotaag.com featuring Dr. Kohl and Dr. Seifried and participate in programs like SDSU's Ag Ceo."