I believe we are changing here on the farm. I am boarding some of my brother Steve’s cattle this year as the price of steers was so high this spring and remains high. I suspect the low corn prices will keep cattle prices where they are for the near future but where this is much to gain there is also much to lose. The last decade of agriculture has gained a lot, things might be ripe for an unfortunate change.
I have said for the last few years that we were prime for a farm crisis. We are not there now but I can see it from where I sit. The current conditions remind me so much of the late seventies. High commodity prices, followed by skyrocketing land prices, followed by falling commodity prices were the course of the day back then. As people ran out of money, they needed operating loans which by then came with very high interest rates. Many sources of credit made people refinance everything to receive an operating loan and so farmers ended up with all of their debt at very high interest rates.
The final blow came with the USSR’s 1979 attempt to overtake Afghanistan which resulted in the United States refusing to sell the USSR food. Commodity prices really took a tumble which, coupled with highly-leveraged farmers at high interest, began the farm crisis. Today farmers have more collateral and enjoy much lower interest rates however there is the whiff of higher interest rates in the near future and trouble in the Ukraine.
This morning I heard that Russia has decided not to import commodities from the United States as reply to the economic restraints we’ve placed on them. I heard one person say that this will have little effect on current prices although he was the same person who said land prices wouldn’t fall even if commodities took a downturn. It seems like one more piece of a scary agricultural puzzle. On most of the agriculture shows I watch, the meteorologist has become a cheerleader to constantly remind people that dry conditions could limit harvest and raise prices. Any cheer is soon replaced by the eerie quiet of sobering news from the guest commodity broker who talks about tactical retreat more than anything else
I noticed tons of new equipment over the last few years. It is good to invest in your business in the good times and enjoy the tax benefits of such investment. It is a human problem that when we have money we feel the need to spend it. It is a farmers problem that when he spends money on equipment he doesn’t need, he then follows this poor investment of money by poorly investing time to create a reason for the equipment instead of just admitting the mistake and selling the excess property. Good or bad, it’s all overhead which is tough to carry when prices go south.
I bet you came to read my column for a little cheer this morning. I probably disappointed you, of that I am sorry. The truth is a bitter pill but the sooner swallowed the sooner it can be of some help. If you doubt my opinion, and that is all it is, then go talk to a farmer who in the prime of his life, lived through the last farm crisis. I am 48 and remember much of the crisis; however such a person would have lived it. They would want nothing of it again. Also, if your first thought is to say, “well, everything is cyclical” then I would be the first to agree. The crisis isn’t in knowing agriculture is cyclical, the crisis is found in knowing when it has come full circle.
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