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Honored Advisor

The Question.

A guy said that he was in a conference of 15 big shot farmers and they got talking about rent, he posed this question that cuts to the meat of where farming is:  "If the farm next door came up for rent and you KNEW that you would lose money, would you still rent it?"  ..He was the only one that said "No" the other 14 would rent that farm knowing that they would lose money.  There may be other bussinesses out that have that same business model, I just don`t know what they are.  If Walmart loses money on Ivory soap, they drop Ivory soap, if General Motors loses money on their Hummer line, they drop the Hummers. Now in farming since 1987, you were rewarded renting or buying things that you KNEW you were going to lose money on, in the last 5 years you were rewarded handsomely for buying and renting things that you KNEW you were going to lose money on.  So through evolution(survival of the fittest) 14 out of 15 farmers will knowingly make decisions that they will lose money on because the "zoo keeper" drops a banana when they hit that buzzer.  It`s psychology, kind of like the guy that dates the prettiest girl in school even though he KNOWS that she will cheat on him and use him for his money. I`m not saying there`s anything wrong with all this, we can`t change it, it`s human nature, like Richard Brock`s "greed, fear, exuberance, relief" marketing chart.  The young guy starting out farming `caveat emptor` you are bidding against 14 businessmen out of 15 that will have no problem bidding at a level that they know they will lose money at.  Just something to chew on, on a rainy night.

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33 Replies
Honored Advisor

Re: The Question.

Pride goeth before a fall.

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Re: The Question.

It is a free country but there is no compelling public interst served by subsidizing that behavior be it through direct payments, commodity supports or crop insurance subsidies.

 

You can argue whether capping subsidies is good policy but I'm of the opinion that none is better than unlimited.

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Veteran Contributor

Re: The Question.

I have had one rule of thumb in my 30 plus years of farming. If the farm next door comes up for sale try to swing buying it and if ground in my immediate area comes up for rent aggressively go after it. I would be one of the guys willing to lose money renting the next door farm. It can be a very fine line between losing and making money. Getting 10-15 extra of corn or 5-7 bushels of beans , or a 15-20 cent higher price can make quite a difference. Plus, once you rent it, and farm it for a year there is always the chance of renegotiating with the land lord. On a next door farm its a risk I'm willing to take-now if it was 10 miles+ away that would be a different story. For the young guy starting its a tough row to hoe. Land base is the biggest challenge. When I started in the early 80's I was blessed my dad had a what was a sizable acreage at the time. There was also alot of older farmers retiring that had 160-320 acres they wanted to rent out. Now in my area there are 2 farmers at retirement age who'll probably rent out there farms in the next 2-3 years. Alot of competition for a couple of 240-320 acre tracts.

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Senior Contributor

Re: The Question.

I kinda agree with Denny. What is the guarantee you will lose money? There is generally no sure thing to make any money, but you stand a better chance at making money than passing it up. Pass it up and you make/lose $0. We rented a large tract close to 10 years ago now, and it was lose money the first 2 years before we fertilized and limed it, then broke even, and then............2006 and hello ethanol boom! We've made a ton of money off of it now! What if we'd have passed on it back then? Made nothing but watch someone else reap the bushels. I think we all agree our yields will increase over the next decade to allow more potential. If you can make the numbers work on paper and reach a set goal, bid your best bid and don't regret it if you hit or miss. Be aggressive, but not stupid about bidding.
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Re: The Question.

People can do as they wish.  But the question remains, what is the public obligation to backstop that risk?

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Senior Contributor

Re: The Question.

No, the public should not be propping up stupidity. Direct payments are bad, and we all know they should cease. And, it sounds like the new farm bill does that but then increases insurance. Agriculture should be independent of our federal govt holding our hands. That's my point above, if your "net profit" is your direct payment and insurance payout if any, you're bidding too much.
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Honored Advisor

Re: The Question.

The "Norman Rockwell" farmer is long gone, that oldman in the painting holding a pitchfork looks like he has enough to do without renting the neighbor`s farm to lose money Smiley Happy   And that`s how farm programs were sold to the `Connecticut housewife` that it`s "Green Acres" out here.  If the government had stayed out of farming from the start we`d be better off.  But to eliminate programs, we won`t balance the federal budget nor will rents come down the $35 or whatever the direct payment is.  Cheap crop insurance is nice but if I had all my premiums back, I`d be better off so if that subsidy went away, it wouldn`t be the end of the world.  Those that would rent the next door farm if they knew they`d lose money, probably don`t really think they would. They believe their yields WILL be better than expected, the price they sell at WILL be better.  And in many areas the past 5 years has beeen the case "they hope for 200 and get 235. They hope for $4.50 and get $6.35 ect.".  It`s been a good ride if nothing else. 

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Veteran Contributor

Re: The Question.

I think most farmers would agree with your statements hardnox but at the same time as businessman we make decisions based on the options available to us. I don't make the rules when it comes to Farm Bills, but what ever Farm Bill they come up with I'll use it to my advantage if the situation arises. We can argue all day long on the fairness or what  should the public's obligation be but its a mute point, there will be a Farm Bill. Agriculture is rapidly consolidating, like it or not a person better get on board and utilize the tools available to reduce risk or they'll be left behind.

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Veteran Advisor

Re: The Question.

My dad's suggestion is to subsidize the first 500 acres or so of crop insurance fairly well, and then after that, let the chips fall where they may.  No direct payments, no disaster aid (a risk you take, if you decide not to insure, or not) and count the savings to the treasury.  The only real challenge will be to catch the cheaters who willl have their dog farm an extra half section, just to get the subsidy.

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