restructuring debt

[hardnox]

A frequent topic ever since rates crashed in 2008. The question of whether, and when, to roll debt to longer maturities to take advantage of historic low rates.

On the one hand those who have waited have largely profited. And I personally see long rates going lower still as the yiled curve flattens. But I've also seen prime at 3 and I've seen it at 15 and 3.25 is a lot closer to the former and, presumably, won't go below 0.

The commodity cycle appears to be turning and the troughs generally last ten years or more before bottoming and beginning to inch higher before they explode in the next peak in another 10 or so.

So the point of my musings is that it might, once again, be a decent time to roll some operating money to long term debt.

The cost of that in recent years has been 2-3% versus staying in short term money. To me it is really a matter of trying to ensure that you have adequate liquidity should the lending market tighten.

If one does that it is very important to up the accounting game to track sources and uses of funds. Short term money tends to act as a form of restraint, a pot of long term money dumped in can muddy that up.

If I were to do it I think I'd go big- if you're going to take a mortgage to refinance, you probably don't want to go back to the bank in a couple of years asking for more- in what might be a less generous lending environment.

I guess the question then is, what can I do with excess cash that exceeds what is required to carry inventories, prepay expenses etc., and I'm ruling out outside investments with any degree of risk (and there is no return on on stuff with no risk).

Any other ways to invest cash inside the farm business that remain fairly liquid but can generate the cost of carry on the money?

[BA Deere]

Well, back in 2008ish when we were all certain Obama was going to spend like crazy and drive the national debt to some unimaginable level, like oh say $18 Trillion or some outlandish number like that. We listened to Jimmy Rogers "Farmers will drive Lamborghinis" ..the only way out of the debt mess was "print our way out and pay off with cheaper dollars"  Well, the government and the fed found a few more rabbits to pull out of the hat. And I suspect they`ll find a few more rabbits, as long as the US greenback is the nicest house in the bad neighborhood.

The idea is for a farmer to ride piggyback on what the government "had to eventually do, inflate"  Farmers had the same idea back in 1979, but things don`t move in straight lines and you can get chopped up on the way from point A to point B.  Even though I shoulda knew better, I got caught up in $8 corn-mania too.   I had to borrow money to pay income tax, then for the first time in a long long time I had to take out a small opperating loan.  This year it`s very tempting to "take out a little more...just to get over this rough patch"  but you know, that is exactly how the deadly flat spin starts...it`s time to push that nose down hard, give her full power and build up airpeed, before it stresses the airframe beyond what it was rated.

[kyu2852570]

Wrong place to ask this and get a honest answer. Everyone here has inherited 320 acres and a line of equipment from their parents and are 70 years old and have never done anything with it but get on here and brag how they have no debt

[Shaggy98]

Who are those people kyu?  I'd love to inherit that 1/2 section or the line of equipment you so freely speak of.  Please elaborate.

[Kay/NC]

Wrong.

We took on a million in debt in 1994. That was to buy and build this farm. We were forty at that time, and interest was about eleven percent.

We have also paid for a large portion of the other land we own, either directly or as support to elderly family members, as long as they live.

My father did give us one pretty worn-out Farmall 504, and we have Mike's family's Super A.

You are right about one thing, though: We have no debt. Not that it was easy paying it all off, but if we ever get a real, no-strings-attached inheritance, I will let you know.

Oh, and we are only sixty....

[Shaggy98]

Hardnox, after rereading your original post a couple more times, I've got a question to ask you.  If you've got debt and extra money both, why not apply at least some of it to your debt?  If you're not interested in paying off/down some of your notes why would you be interested in investing that money back into the ag industry?

[Kay/NC]

It does make sense to diversify. We spent some of our cash reserves nearlynthree years ago on repairing and updating rental houses we already owned, so they could command higher rents. The three houses we rent out now carry off the considerable costs of owning all of our land, in taxes and insurance. That is only one example of putting money off the farm.

[Red Steele]

well here is my take on it....I tightened the belt a year ago already, and said "no" to the seed suppliers...I came up with a number for the triple diple stuff and said this what I can pay...take it or leave it....you are  now one of the top three on the list... but there is a longer list. For 2015 I moved that number down (not enough) and for 2016 I am looking at conventionals and corn/soybean rotations only. Back to a 50% corn...50% soybean rotation...maintenance fertilizer applications or none as soil tests indicate, and going with wholesale fertilzer purchases (save 10% , but can manage the applications better which is another 20% in my thinking). Spent a little bit of money to buy 12r cultivators (they have gone up for decent ones) and for the fertilizer equipment, but it does create some price cutting opportunities. Probably will cut out expensive crop insurance and go back to agonizing every time the skys turn dark , but the days of any big pay days there are probably gone. Said "no" to a couple of landlords on rent hikes...verdict is still out on how that plays out. Saving  $1000 is akin to earning it, and these are times to get the house in order.

I remember having a pretty good debt in the early 1990's and selling off some toys I didn't need to reduce it...I have lots of stuff that I should move now, and will. The wind direction changed and for those of us with a moistened finger up in the air, we can sense it. I know of some farmers making moves or leaving farming due to high bank loan balances. Its time to be proactive, not reactive. I analyzed the new farm bill with different price/yield scenarios for my farms, and cannot find a scenario where anything beats ARC county for what I see happening, and the money that comes in for 2014, 2015 and 2016 should be used to pay down debt or tucked away so far back in a vault that the squirrels cannot get at it....looks like we will need it down the line.

I am just thankful for the inherited 320 acres, the full line of equipment, and the rich wife. Yeah, and my good looks, too. Well, maybe one out of four isn't bad. Thanks mom and dad! You taught me how to live a spartan lifestyle, and that is the biggest inheritance of all. 

[OKdon]

They're all lying. They are in debt for the telephone bill and the electric bill. Maybe one day or 30 unless they pay it on a daily basis. Credit cards anyone? I don't pay mine daily but every 30 days. So I doubt there are very many debt free.

I'll be age 75 next week and my mother is age 99 and I think she is waiting for me to croak so she gets my inheritance. 

The point being don't expect an inheritance to make you wealth. Work smart, spend smart, invest smart and stay disciplined or buy a powerball ticket if you feel lucky. It doesn't do one **bleep** bit of good to whine about that head start that someone else got. Perhaps your mama picked the wrong daddy. Or you have too many siblings. You can't do anything about that but you can plan your own objective and focus on acheiving it.

I was amused by your assumption that you would not get an honest answer and your very next sentence was complete bull scat. 

[Kay/NC]

Don, actually, most of our billsseem to be for the upcoming calendar month, where service levels are regular, like phine, cell phine, etc.