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11-02-2016 02:55 PM
Do you know a Go-Go Farmer? The fourth year of low commodities prices is doing in some farmers. This is no secret or surprise to you all, I'm sure. If you have a few minutes, this piece from Reuters is perhaps one of the most interesting (and unfortunate) compilation of today's farm markets environment.
Do you know any of these types of farmers in your neighborhood?
11-02-2016 04:07 PM
I suppose most everybody does.
It always seemed almost certain that there would be a big thud once the ethanol program quit moving the goalposts every year- the '12 drought actually extended the run a bit longer than I'd expected. But anyway, the cost structure was pulled all out of whack and prices moved back to what are only historically high nominal levels.
Back about '11 I mused that it was going to be very difficult for large cash rent operations going forward and suggested that considering a staged retreat might be in order for some. Of course giving up a single acre is anathema to many, there are problems with previous tax avoidance strategies etc. But sometimes cutting your arm off is better than dying up on the mountain.
I guess the good news is that since the pioneers got scalped the rest of us may benefit as it will be called a crisis and the gubmint will increase support to some extent- for the lenders, input industries (who are on the hook fairly heavily here) etc. as much as for farmers.(Any expectation of political help has to be considered uncertain in this environment).
BTW as I've noted here- the nature of debt structures is a bit different than in the past. It is more a matter of lender exposure to operating loans than land mortgages and vendors are holding a fair amount of unsecured or second lien paper. The primary lender tends to be in pretty good shape with first lien but he is in a position where he'll want to move to cover his interest before the matter gets any muddier. The second lienholders and beyond may be SOL when he does.
I imagine that the very substantial legal and lobbying departments at DE, MON, DuPont have been on this case for sometime. Given the way the world works I'd also note that unloading some of that stuff before it is fully realized may be behind some of the merger mania- a great way for management and boards to cash out before the chickens come home.
Those companies have basically become unregulated banks- like GM and Ford were before the crash. And the finance arem can look like a money machine until it turnms into an incinerator.
11-02-2016 06:37 PM
In the attempt to create a flashy title and probably a politically correct undertone the author misleads the story......
It is not a story about the financial struggles of the larger farms. It in fact states that the bankruptcy's of large farms are not tracked. Yet he grabs on to a big fish for some foolish reason ........... it's beyond me...
"The federal government doesn’t track large farm bankruptcies, but a special category of bankruptcies for smaller farms - Chapter 12 filings - points to distress in the grain sector." .............. that is an understatement.... and the data within the story leads one to believe that there is an even greater distructive undertow of financial problems present in medium and small farms.
"In the top Midwest grain states, the number of Chapter 12 filings, limited to those with less than $4.03 million in debt, were 51 percent higher in the 12-month period ending June 30 of this year compared to the same period in 2013" ......... that is a shocking revelation when you consider how small a million dollar investment is these days...maybe a couple of tractors, a combine, sprayer and a planter....... and you haven't bought seed yet.
"one in three U.S. farms raising grain and other row crops, not including cotton, last year were categorized by the department as “highly leveraged” or “very highly leveraged,” meaning their debts equaled at least 41 percent of assets."..........Remember the government isn't tracking large farms.. this statement is based on small farms.
"The Gibsons were part of a larger expansion binge by farmers in the Midwest"....... a shamefully misleading and uninformed statement..........."In Indiana, Iowa and Illinois, the number of farms with $1 million or more in annual gross cash farm income - a USDA figure that does not account for operating costs - increased 65 percent between 2011 and 2014"........This does not support or relate to the statement made...... probably, grain price run up alone by the drought would have accounted for that without any acreage expansion at all.
"In 2014, these more than 12,400 large farms occupied one out of every three acres of land farmed in the I-states and pulled in 41 cents of every farming dollar."....................... If that statement is accurate it was probably just as true in 2011 or any other year. It is not necessarily a creation of an expansion binge that happened in 2011 through 2014, or proof of anything. The inference is very questionable, but rather has been a process of changes in farming going on for the last 50 years or more. There is far more expansion done in difficult years when folks are getting out than in good years....It is when land is available.
The article is manipulated to "fight the 50 year trend" of small family farms dying off and blame that reality on greed and those who have grown over the generations. It is a typical "blame the survivor" response... when in fact the government we elect and the laws we vote for have had far more to do with the trend than prices, greed, or weather. Add to that technology that is wiping out jobs across the board. This article as usual these days is trying to push a political social engineering agenda that blames success for the failure of others.... It is misleading and a shame because there is a big story here that doesn't need "shaped". All of agriculture is in a serious problem..... Just like the 80's and the 30's, the Big will survive it......... most counties will see losses of many small farms ignored and the papers will be sold on the big farm that took the embarassing fall yet just like this story they will probably survive because they have more options.
It is a shame too it could be a good story.
It is similar to the story of the lady sueing McDonalds for hot coffee, while the other stores on main street die off without a word.....
Mike, ......... the answer is ........ I know a lot of Go-Go journalists.
But in my area the Bigger farmers have been working on it for generations and are too diversified and strong to fit this story..... The truth is what is going on now in agriculture is hurting us all...... and eventually the stockholders more than the producers.
The truth over the years is those with the least going for them take the brunt of the damage.... Government talks about changing that but they do not.
11-02-2016 07:39 PM
Sorry if you think it is bad PR for agriculture.
But the 5, 10 20K cash rent operator is a fact in the I states and surrounding area. For better or worse, a really dumb business model for the government to subsidize.
Also true that there are some very stout large operations that will survive and thrive, and pick up the pieces. Also dumb to subsidize.
But the farm organizations, parasite corps will expect that they get bailed out.
11-02-2016 11:18 PM
11-03-2016 06:19 AM
There are farmers that think nothing of renting land in a 200 mile radius...my nerves are shot just going 15 miles in my old jalopies. These son-of-a-bucks are wired differently...I mean to have 500 acres of beans, 150 miles away to combine on Thankgiving Day, wouldn`t be my cup of tea.
But when you get big, you no longer have "small problems".
Supposedly bankers only lent $3,000/acre on this +$12,000 land and alot of these families that have went nutso buying this high priced stuff in the last 7 years hadn`t really owned much land prior to land sky rocketting. I just don`t know where the extra money came from...did their aunt Thelma leave them $30 million in a 2009 estate? I think some gimmicks were used and another year of below cost of production, those chickens will come home to roost.
But when a 10,000 acre farmer throws in the towel, there`ll be a 30,000 acre farmer ready, willing and able to pick up the slack. The demise of a 10,000 acre farmer won`t yield (20) 500 acre farmers, that is for sure.
11-03-2016 07:19 AM
Take it as a given that as long as there is somebody willing to finance it, someone will rent a farm at any price and give it a whirl no matter how dim the prospects. The only limit is someone telling them no.
The rise of vendor input financing added a big chunk to the pot.
As I've been saying for a couple years, given that debt profile, primary first lien lenders probably aren't going to be shy about protecting their interest while they can.
11-03-2016 07:55 AM
BTW, if you exclude previously sunk costs the marginal cost of producing a $300 bag of corn is probably well less than $100, probably even larger margins in patented chems.
So it is a rational action for them to front somebody, even if the borrower is marginal, if they're going to get paid for 2 years.
Although that doesn't mean the stock of the company isn't going to take a hit if they have to realize losses that they haven't previously accounted for.
BTW further, I've been a bit surprised that we haven't yet heard more problems pop up concerning machinery dealer inventories. That is also partly a credit problem, partly a tax policy problem and partly a bubble problem.
11-03-2016 08:02 AM
Out here where the risks are greater the cash rents are cheaper and many still crop share.
I know and see the hype of cash rent in the I states where the crop is guaranteed by usda.---joke
But I have never understood the rush by folks who farm to blame the high cash rents on the guy who signed the lease.
Yet the same folks pat the guy on the back who wrote the lease.
How is it labeled "greed" on one side and a "good deal" on the other.
The devil in the deal is the owner of the paper/land. He waves that good dirt at the younger farmer and tempts him with instant growth, then gets mad when the kid bites off more than he can chew. The kid is the smart one..... who takes the time to understand the economic reality he lives in, It must be a miracle in the I states when a young farmer finds a devil who helps him survive.
The devil knows what he does and if he feels guilt he will put a lawyer or a dirt manager in the middle to insulate himself from what he knows will most likely happen...
We're not totally imune out on the fringe --- it is human nature..... and every young farmer should know good dirt doesn't make up for a bad owner.....and every other deal should get a "NO".....
I just think we should stop blaming the young growing farmer for getting caught up in the devils trap. It is a slick trap, because he knows he cannot survive on an average number of acres or grow it the old fashioned way.....He doesn't have three generations before he needs equipment he can afford. Nor can he feed his family on the garden out back and milk 4 cows..and ask his kids to walk to school 10 miles one way.....(or whatever old story the devil tells.)
It is unbelieveable how much we chear for the demise of our next generations..... We should marvel at what a farm can be in the future and do what we can to help it happen............ and share in the joy...
I know ----------- it is too much to ask from folks who are appraising $50 dirt for $5,000........ The devil wants it all.
nox I agree it is a dumb business model, and too many young farmers don't have a good "business" background. But they can't cash flow the equipment investment without it.....
When there is no entry point for the next generation, where are we?
How is this different than borrowing money expecting our next generations to pay it off? Isn't this just parasitical retirements?
It's just dirt......every quarter section is not supposed to make someone rich......
Originally it was supposed to give a family a home...... and it did........ real value has been falling ever since
BA ---- not sure it is wiring, but it is the trap we built. And thank you for looking around without rosey glasses. There are so few self supporting small farms left.
I nearly broke my ankle diving off the soap box.........sorry for too many words....
I hate "Go-Go" journalism........... It is such a big story............ Ag is going to change ........ and is changing very quickly.