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Senior Contributor

Lower incomes ahead -- what are you doing to prepare?

Gary Schnitkey at University of Illinois says corn prices will run about $1.34/bushel lower in the next year than they have averaged from 2010 to 2012. Soybeans about 86 cents lower for that same time period. 

 

He says cutting back on major purchases (machinery, namely) and renegotiating land rents are the main ways to cut back in preparation for the overall slide. But, what else can you do on your place to trim back if this outlook reaches fruition?

 

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Veteran Contributor

Re: Lower incomes ahead -- what are you doing to prepare?

Renegoitiating land rents would be bad faith.   Being more realistic when renewing your land contracts would be more appropriate.

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Re: Lower incomes ahead -- what are you doing to prepare?

True. 

 

With the exception of tenants who unilaterally took rents up before the term of the lease was up knowing that the windfall that everybody knew was dropping on them would surely be problematic somewhere down the line.

 

 An interesting and I'm sure highly individualized situation. Will the good will be reciprocated?

 

In discussing what tenants should do at the time- early boom before rents caught up- I hypothesized that older, smaller farmers should probably just milk it for all it was worth (there probably won't be a lot of good will) then have a sale and get the neighborhood BTO to give them a big rent on as long a term as possible.

 

That BTO, btw, will almost certainly be trying to negotiate down if the future doesn't turn out bright.

 

A wise old farmer who I knew, if my math is right he was born in 11902 and lived to 98, told me in 1996 that $5 corn would end up baknrupting more farmers than $2 corn did.

 

In that particualr instance he was wrong (the government didin't end payments, they doubled down) but there was a principle that he probably had right. Managing the backside of a boom is challenging.

 

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Honored Advisor

Re: Lower incomes ahead -- what are you doing to prepare?

Jeff ----- how you handled the profits of the previous year is key.  If that went to personal  savings or spending, the backside of high prices is always tough.  

If much of the profits realized are spent on deductable or depreciable expenses that enhance future production or lower future costs, handling the lower down years will be much easier.

 

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Senior Advisor

Re: Lower incomes ahead -- what are you doing to prepare?

The best way is with no debt. No interest payments are better than low interest payments and you have nobody "helping"you make business decisions.

 

I'll bet you my 2013 crop will fully fund my 2014 crop and just may have some left for us to eat on. If not I will get my cardboard sign that says please help and I will stand at the corner of 71st and 169. There is alot of traffic there and alot of generous people that drive by.

 

I wil park my lincoln in the staples parking lot about a block away and tell folks that anything donated helps. BUt then again the crop might just provide enough for me and the mrs. If not we may have to think out of the box.

 

BTW I gave a guy a twenty when I moved down here some 7 or 8 years ago. He still has the same cardboard and he is still working the same place. Yes he parks in the staples lot so the strategy must work.

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Senior Advisor

Re: Lower incomes ahead -- what are you doing to prepare?

Not planning on doing anything different.  I always try to raise the best crops I can given the current conditions.  I don't skimp on inputs when commodity prices aren't as friendly.  I will continue to plant certified and treated seed on every acre and will even continue to do a little in house experimenting.  If we continue to do the same thing, we shouldn't be surprised when we continue to receive the same results.

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Advisor

Re: Lower incomes ahead -- what are you doing to prepare?

Definitely reduce debt. Machinery costs r next to nothing for next year.
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Honored Advisor

Re: Lower incomes ahead -- what are you doing to prepare?

Jeff, just like in any occupation or business, it is always smart to build cash reserves today, in order to be able to bridge income gaps down the road.

Reducing debt is great, if you can eliminate payments entirely. If any installments are due, though, just anticipating principle today will not prevent losing it all tomorrow, unless you can make subsequent payments on time.

Having cash on hand to fall back on lets you enjoy some slack in the chain of debt.

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Veteran Advisor

Re: Lower incomes ahead -- what are you doing to prepare?

Machinery costs next to nothing??  I don't think so.  Maybe out of pocket expense, like loan payments, but even if machinery is owned free and clear you still have repairs and insurance..  But the big one is depreciation/replacement cost.  Maybe not a yearly out of pocket expense, but it will catch up tgo you and needs accounted for

Honored Advisor

Re: Lower incomes ahead -- what are you doing to prepare?

I have been panhandled by the same guy several times in various parking lots on two different cities in NC. It is always some version of his car breaking down, or being out of gas, and he is trying to get to either DC or Baltimore.

I was taught never to open my purse around one of these guys. I tell this character the name of the mission or traveler's aid group in that town...and he has always already been turned down by them already. When I walk away without making his day, I suddenly become racist....

I guess my point follows yours...there are professional beggars in our culture.

I know you were being tongue in cheek with your post, but there is a tendency for a fair number of people in this society to stand with an upturned palm, waiting for someone - or everyone - else to solve their problems for them. Federal employees, who enjoy among the best job security and benefits in the country, who are claiming instant poverty this week, are plucking my nerves right now.

Farmers have to figure out how to bridge whole years, decades, and even generations, of less-than-stellar income. The ones who think that the last few good years are the permanent trend are getting ready to be weeded out. The smart ones, who will make it, saw this (and worse) coming.

The federal workers pleading that they can't weather a storm of a few days or weeks duration would have a whole new-appreciation for their situation, if they moved to the farm for a few months.

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