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Veteran Advisor

Farm Debt Increasing

USDA says farm debt is getting high but strong land values are keeping the equity up.

 

What happens if land values weaken?

 

There is no reason to me that the US will necessarily be a first rank or strongest grain exporter.  If farm margins stay tight, something has to give.  Part of that will be more small farmers getting out and big farmers getting bigger.  But there's a limit to that.

 

At some stage, land prices would surely see some pressure.

 

Especially if there is any reduction in farm support in the Farm Bills.

 

What do you think?

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58 Replies
Advisor

Re: Farm Debt Increasing

Many people, farmers included, are in denial. I know one in my area has filed bankruptcy. Another has let go of equipment he was late on payments, and three more who are without access to credit. This trade war has done irreparable damage. The USDA has already suggested it will be nearly 2027 before we fully recover. With data from the Carter years, the conclusions have merit. Demand for our products are down. Our reputation has been damaged. And now, who is going to bet the farm we will have a sixth consecutive higher than trend line yield in corn?
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Honored Advisor

Re: Farm Debt Increasing

Maybe "this time is different"? Probably half the Ioway land is held by tight fisted old widows.  And bankers would "only" finance $3,000-$4,000 for the rest of us. Then you have some of the Bigshots have a car dealership or construction business and they`re coining money from that end of things and use farming as a tax dodge.

 

I think it was the 80`s where they told farmers to be most efficient you should have $2 borrowed for every $1 of networth, you don`t see that anymore. 

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Veteran Advisor

Re: Farm Debt Increasing

From one of my former posts.  82% of Iowa land is owned clear.  It 's the tenants who are going to be squeezed.  A landlord friend of mine says no one is crying about the rent.

 

From ISU land survey December 2018.

60% of land owners are 65 years of age (yoa) or greater, 1/3 is 75 yoa, 13% owned by women 80+

53% of Iowa land is rented out, mostly cash rent

34% owned by landlords with no farming experience, 23% by retired farmers no longer farming

29% owned by families primarily for family/sentimental reasons

Ownership is continuing to shift to trusts and corporations 

 

In 1982, 60% of land was owned free and clear.  In 2017 it is 82%.

 

Most of the land is owned long-term.

 

I got this from an ISU presentation.  You'll have to go to the ISU website for the backup.  The full report costs $5.

 

 

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Honored Advisor

Re: Farm Debt Increasing

Mortgages are hard to find and schools seldom do the research to find who co-signs notes.
Wonder if government owned land is included and institutional owned ( like endowment farm land). The defining of terms keep changing to help the stats. Especially when a legacy is involved.
Economic stats over time are near impossible to compare. Like unemployment data.
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Veteran Advisor

Re: Farm Debt Increasing

BA  -  Your  last  line  on  efficient,   being  priceless,   especially  the  '' they ''  formula   -  -  -

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Advisor

Re: Farm Debt Increasing

Actually, in the 70s and early 80s, the mantra was plant fence row to fence row.  Banks encouraged borrowing on inflated land values as land prices went up.  The go getters ignored caution and did that.  And you all remember what happened when interest rates soared.  

 

Today, a healthy balance sheet with the right ratios and working capital is #1.

Honored Advisor

Re: Farm Debt Increasing

It’s similar. In 80’s usda and others predicted world shortage and proped up land as a good investment.
This time the fed sat on interest rates and congress spent in record speed to build a (sort of)vision of demand in “clean energy”.. forcing investment to agriculture with nothing stable elsewhere to invest in. Other than the tech casino. Proped by the image of a “fragile” environment. In private industry Smokey’s right on.
When we start expecting that sort of healthy business sense from our leaders — there will be hope.
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Honored Advisor

Re: Farm Debt Increasing

The Zeihan speech (that Ishmael moved to the forum) he says the baby boomers brought in a surplus of capital.   However, as Boomers retire and die off that easy capital access will dry up Gen Xers don`t have that stash of cash.  Therefore look for money to cost up to 4 times more in the coming years.   I don`t know what Zeihan exactly means "4 times"  if Prime now is 2.5% then look for prime to be 10% in the future?  Can`t be 5% money at the bank will be 20% in the future or that will be the 1980s all over again.

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Honored Advisor

Re: Farm Debt Increasing

Since SF was sold to the foreigners you can’t quote conservative thought — there is no free speech here.
But I’m not sure I agree with him either. (Z).
Baby boomers don’t deserve much credit. Still a monitory policy issue. If not borrowed $ why would interest rates cause problems.
Feds either thought we could stand 20+ % interest or decided to trim farm population was ok.
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