Inflation and Your Farm

Hi, I'm Dr. Dave Kohl, professor emeritus, agriculture and economics, and Academic Hall of Famer from Virginia Tech, Blacksburg, Virginia. Today's subject matter is the government spigot. It's real interesting. After several decades of moving toward globalization, around 2017, we not only saw the United States, but many countries around the world turn the government spigot on to the agricultural industry. This was the result of the trade sanctions and tariffs, not only here in the United States, but in Europe and throughout the world.

The major question comes, what's going to happen in 2021? It's real interesting. Recent FINBIN data has found in 2019, 95% of the net income to grain farmers came from a government check. It was actually 93% for the hog industry, 115% for the beef industry and 35% for the dairy industry. So as we plan out for 2021, one of the things that I suggest producers do and lenders do, is to see in a financial shock test what a 25%, 50%, and 75% reduction in government supports would do to the financial bottom line. Better yet, it's very, very important for producers to have a game plan of what's going to happen post-government support. So again, the government support spigot has really helped our cash flows and our profits, but it's also been built into land bays, and one of the things that we need to do is this financial shock test.

Well, we'll see you next time, where we'll discuss another subject important to the management of the business.