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Honored Advisor

Here`s what might happen, maybe

...if the current carnival atmosphere in farming continues for a while yet.  There are farmers that are part-timers that drive truck or something and own a quarter and rent another quarter and carry some debt.  Now their banker may say "Look, I`m not gonna give you $500/acre to keep renting that quarter.  Sell your machinery, pay off your debt with me, rent out your quarter for $500 and that will free up more time to do more trucking.".  In these volatile times that probably is sound advice for a farmer that size.  Now, those 300 acres will go to a 10,000 acre operation, if this continues today`s 10,000 acre outfits will quickly become 20,000 acres. Do these operations stress-test themselves for 2 or 3 yrs of $3 corn? I don`t think that many of them could handle it.  With a nation weary from lay-offs and uncertainty in their own lives and Norman Rockwells farmers gone, I doubt there would be any support to bail these clowns out again. I would imagine that like when the mega-hog farms went broke, they never lost a beat in production, a investor bought them out. Farming has become a high stakes poker game, now you may be the world`s best poker player but if you don`t have the $1 million buy in stake, you`ll never see the table, which might be a good thing.   

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13 Replies
Advisor

Re: Here`s what might happen, maybe

An interesting scenario.  So corn goes to $3, the guy with 20K rented land loses half and lays off his help.  The land owner hires the layed off worker to drive his truck and begins farming his ground and the neighbors again making more $$ than he did driving the truck but the truck business is still making money.  Now we just went full circle!

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Honored Advisor

Re: Here`s what might happen, maybe

Well, kind of Smiley Happy.   If there is some sort of day of reckoning, a extended period of below everyone`s cost of production, I think there would be investors stepping in to take over some of these mega-farms. See, between 1896 and 1930 there were 1,800 US auto companies, today we basically have 3.  Those 1,800 car companies exist after being absorbed into the current big 3.  And that`s the direction that I see for farms.  A guy that gives up rented land, sells his machinery and rents his own acres out with the idea of starting again down the road..9 times out of 10 won`t.  I`ve see it will the dairy farmers, after the "dairy buyout" I never personally heard of a dairyman going back.  The public would have alot of problems writing off debts of the guy with a 48 row planter, but would be just fine with a "Koch brother" or a "Warren Buffett"(depending on your political persuasion) owning a dozen or 2 of what today we refer to as "BTOs".

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Advisor

Re: Here`s what might happen, maybe

our grandchildren are screwed

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Veteran Advisor

Re: Here`s what might happen, maybe

I'd say about half of the big operators here, would be able to weather it out.  They rent land from landowners who are unable to farm it, and if a crash comes, no one will really be able to outbid them on much land.  Provided they don't bury themselves into too much debt, I think they'll be fine.  A good manager is a good manager, in both good times, and bad.


Now, on the other hand, there are those who are basically farming everything the banker will let them, and those are the ones that will have to worry if things turn the other way.

 

Lastly, to the farmer who is running two quarters.  If he has all his machinery paid for, he might be as well of plugging away at farming, as machinery sized to run only a couple quarters doesn't bring much at all, except maybe for the tractors, if they are in decent shape.  I farm under 500 acres of row crops, with my brother, we share machinery, and we just bought a combine, with head, in very good shape, for under $5000.  It seems that pretty much nobody wants a 1440 anymore, as they are 'too small'.

Ditto a planter.  Auction prices for a 6 row planter are around $1500, for one that is straight, and all there.  Add in a tractor that would be worth maybe $10,000 (you can get a 1066 with a recent overhaul and new TA for about that price) and a few odds and ends, and they guy farming those 2 quarters might have less than $200 an acre total machinery invested.

He turns a profit of $300 an acre on the quarter he owns, and $80 an acre on the quarter he rents, and winds up with roughly 60K net, before living and repair expenses.  (I assume since he is a trucker, he'd truck in his own crop).

If he works hard on getting his debt down, and lives modestly, he just might be able to ride out bad times as well as anyone.

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Honored Advisor

Re: Here`s what might happen, maybe

Arguably,. if the BTO hires folsk to work, gives them a living wage for their time, and they have no worries, he may have performed a public service.  Those same smaller farmers, carrying debt over their heads, and a lot of worry on their hearts, may have struggled to be independent operators, and never done as well in profits as they do in their pay. 

 

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Honored Advisor

Re: Here`s what might happen, maybe

I agree Kay money flows in the most efficient path and that can be mighty painfull.  Watching movies that take place in the future you never see a "M Farmall" mowing hay in the background.

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Honored Advisor

Re: Here`s what might happen, maybe

I`m kind of in your camp Nebrfmr, life takes turns that`s sometimes impossible to perdict.  A farmer that could sell his machinery today and pay his banker, rent out his owned quarter for $500 and increase trucking hours would be mighty tempting.  Because if his landlord wanted $500 rent, that`s a case where if all his ducks are in a row he may make a little, but there is a huge risk he could lose alot.  There hasn`t been any major opportunities to do much price risk management on the board and with today`s inputs.  Like let`s say 180 bushel corn sold a $3=$540 this fall.  It would be kind of irresponsible to contract over 150bu/a  at say $5.30=about $800 locked in, plus hopefully an extra 50 bu to sell of the combine at a cash/crash price of $3=$150..Basically a profit hinges on that "extra 50 bushel" to sell at a better than $3 price. Clear as mud? Smiley Happy 

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Honored Advisor

Re: Here`s what might happen, maybe

Seems that most movies and TV shows that take place in future settings in time are post-apocalyptic. Barren ladnscapes and smoking hulks of machinery, no trees, nor an animal anywhere. 

 

Exactly what I saw, the first time I stepped up onto a mining pit's berm on my homeplace, after my father signed a royalty lease.  The landscape hasn't mproved a while lot since then, in 1996.

 

Every significant change carries a proportional price.  If you don't pay for it, someone else does. 

 

To quote my favorite Sunday School teacher:  "This is a changing world we live in, and these are changing times." 

 

It was true in 1969, and still applies today. 

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Honored Advisor

Re: Here`s what might happen, maybe

All we have to do is review the diminishing farm numbers for the last 40 years.-----------the trend is not going to go the other way, no matter how much we are in denial.

 

Rawhide if our grandchildren are unwilling to accept any opportunity other than one from the last century, you are right.  They are going to see great opportunities, but they will have to live in the realities of their time.

 

Every new advance in agriculture since ww2 has increased our efficiency and productivity and increased the optimum size of a farm entity.  The new tech developments coming on now, satellite data control and computer enhancement, are only going accelerate the trend.  We may already be at a point where even the chemical companies would consider owning production the other half of the profit margin.

 

 

 

 

 

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