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vrbuck
Advisor

Re: leveraged equity

As I compair the current super cycle to the 70's and early 80's super cycle I would say we are at 1979. We are not yet at the highs and a long way from a land depression. Even during 78-79 we saw a land correction like we have now. There is possibly two more big run ups coming before our Kate 80's collapse. Buy your ground now on the next good grain rally land will take a huge jump.
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BA Deere
Honored Advisor

Re: leveraged equity

Alot of good and interesting comments here, proving each area is a little bit different.  The saying is 'history doesn`t repeat but it often rhymes" so in my opinion, it`s hard to correlate the 70`s with today.  Farming then many thought wasn`t so much fun, pretty much every farm had livestock and you had to cultivate 3 times and "walk the beans".  Another thing in the 70`s a rich relative that gathered together a 640 acre section was told by his lawyer to "don`t buy anymore land, your kids will lose it to estate taxes".

 

Unless grain prices get above C.O.P so that land can some what maybe halfway carry itself, the only other way it could go up from here if it was a "Weimar Republic" inflation scare to draw in outside money.  But there again, property taxes and if a Bernie Sanders type got elected,  you can`t "hide" farmland in an off shore account, it`s right there for the taxman to ravage.

 

Alot of this run up in land had more to do with outside factors.  This is just an anecdotal example, but two equally blessed with the "I want to farm the world gene". The one got in early on the hog house business and worked his hindend off, today he owns 3500 acres and farms 25,000.  The other money gruber depended solely on cash grain sales he is 5 years older than the guy that started with hogs, but he "only" owns 1500 acres and farms 10,000.  That younger guy with over twice the size opperation had that "hog income" advantage over the guy depending on just his wits in buying cheap and selling high cash grain income.  Both essentially started with nothing.     

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sw363535
Honored Advisor

Re: leveraged equity

I keep thinking the "cycles" and other historical comparisons are unreliable because much of the present is manipulation.... or should I say fending off the lions by fed action....

Have we ever had a point in history when financials have been so "interrupted" by the "we can spend our way out of this" crowd...

 

It so fogs up my glasses that I am not sure where we are going..

 

Is that too extreme?  Am I way off?

 

Most of the discussion on this one assumes some expected direction, brought on by market forces and I just don't see it...

 

Those who have are desperate to get assets that generate income.  And those who have labor to sell are being pushed out of the hope line.,.

hardnox
Advisor

Re: leveraged equity

BTW, if someone bought land with cash and then had to go back to borrowing more for short term operations, that isn't cash, it's just a juggle on the balance sheet.

 

Doesn't pertain universally to that hypothetical sort of operation but I've been publicly musing for some time about when it would be time to roll more debt to the long end in order to make sure you have adequate liquidity when credit conditions tighten.

 

I think the 2012 drought pushed things out a couple years and things like that can and will happen, you can't predict this to a T.

 

There are a couple of problems with doing that- one, it just flat out costs more as rates are higher and you'll likley have more debt over the course of a year as opposed to a revolving line. It's sort of a negative carry trade.

 

Another is keeping track of the cash- a line often acts as a restraining form of discipline, and how to make use of the cash in a profitable way.

 

The operation this probably relates to the most is the not-super-well-heeled larger rent cropper who has options to adjust to the changing environment but may not get a chance to do it on his own terms if short term financing starts to get constrained.

hardnox
Advisor

Re: leveraged equity

As far as manipulated markets go, one caveat here is the obvious manipulation that has occurred. If for some reason we'd decide to go back to burning all the surplus up to the point of global crisis, then throw everything else out the window.

 

My best take on the policy consensus is that isn't likely to happen but the biofuels sector will continue to get a bone when there are adequate domestic stocks.

 

Short of a major increase, though, the world is presently well supplied.

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sw363535
Honored Advisor

Re: leveraged equity

Ok.... Well I guess it will end sometime but for now I think you might as well forget market forces,, caues we are just setting on the park bench with our field glasses watching to see where the government droppings land...

Half of us can watch the fed... 

And the other half of us can watch for the usda report...

And we will all miss what thw social engineers are doing in congress...

And over the holidays we can tell our grandchildren how the markets used to work,,,,

 

 

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hardnox
Advisor

Re: leveraged equity

Exactly.

 

We've had many decades of neoliberal social engineering of "agriculture" and rural America.

 

Ag does tend to be a good microcosm of our broader trends and like the rest of America, this one is about corporations, with the charter school corporate privatization of the farm program being an excellent example.

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Red Steele
Veteran Advisor

Re: leveraged equity

There is a classic lesson going on right now on how NOT to let free enterprise and capitalism work, and I agree that it is very hard to read the tea leaves on this one.

 

The guy hording his dollars could be right, with a conservative movement taking over, and the NW IA bidders approaching the $20,000 per acre standard might be right if hyperinflation kicks in and the printing presses go wild.

 

I would not want to bet the farm, so to speak, on either scenario. The short term bias is definately down, but who knows what is going to be going on in five years.

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hardnox
Advisor

Re: leveraged equity

Having cash won't matter if the printing presses go wild- at that point it'll be like the 70s when the banks had specials where you'd bring your tandem and a scoop shovel, back it up to the vault and get all you could in 15 minutes.

 

The reason you might need cash is deflation. In which case your balance sheet would be going to pot but you'd at least have a few years to figure it out.

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