Saw a report today from the Federal Reserve of Kansas City on one economist's view of the farm 'boom-bust' cycle and whether or not we're nearing the end of the 'boom' period and the start of the 'bust.' There are a lot of signs pointing to either a delay in or altogether lack of a transition between the 2, that maybe conditions now are leading to a new plateau, or a 'permanent boom.'
There's a century or so of boom-bust cycles that give evidence that today's climate will, in fact, turn lower. But, farmers don't generally have as much debt as in previous 'busts.' So, you could argue either way, I guess.
What do you think? Think we're headed toward a bust or will the 'boom' keep on going?
Permalink Reply by Brian Grossman on This was not me saying what WILL happen, I was just pointing out what could happen with the way things are looking right now. Out of curiosity what parts do you not agree to be possible and keep in mind the math part to do losses was an example, I have no idea how much or if at all, asset values will fall. Those were just easy numbers to show how fast it can add up as well as the economic issues that could create a crash.
Permalink Reply by Morgan McNeal on Good points and i suppose very true. Ill be the first to tell ya i dont believe these prices will hold out. If they do then lets all rejoice. Ive contracted all my wheat to insurance margins, and i soon as i get the beans in the ground and insured they will be contracted for profit margin. Makes one consider going out to 2013, but around here that is just hard to do. We never have consistent enough rain to be able to make that a safe bet even with insurance. Oh and they are calling for 6 dollar fuel. It'll hurt us some running the tractors and such, but i think where it might hurt the most is custom hauling, custom harvesting, see basis widen at the elevators things of that nature.
Going back to the 12000 to 6000, we wont see that in our area, HIGH land prices are pushing 900 an acre so a 50% drop is 450. Where most of the farmers around here are running used equipment your going to see a 20000 dollar tractor go to 10 or 15, yes they will be hurt, but i think bankers will be willing to carry them at least for a short time on the smaller losses. I could be wrong though. A few hundred thousand loss may be the same as a few million loss. I know ill feel the pinch, and alot of other beginning farmers. Most of us have a lot of leverage. Just about have to to get started from scratch. I do have all of my cattle free and clear. That really makes the banker smile. Even if prices are bad, cattle are just about the most liquid thing to straight cash, and as long as you have them and they are productive they make alot more money then what interest rates at the bank do.
Permalink Reply by Brian Grossman on Yeah I knew that you were in a drier area and would not likely have land prices that high but it was a number that got thrown out there so I just kept it going. I was just pointing out the other side of the picture. As said earlier many have a short term memory and have forgotten about how low prices can go. There are a lot of bearish factors that are being forgotten. I honestly would be willing to bet that corn will have a 2.XX within the next two years, however the length of time it stays that way is dependent on so many things that it is impossible to predict (I.E. crude prices, US dollar, SA crop, FSU crop, ethanol demand, US economy double dip/recovery, fuel prices, etc) I have heard about the 5-6 dollar fuel, I am betting we won’t see it since our economy could not survive it so demand will drop fast. Just as I can build an argument on why prices will fall there are also a lot of bullish factors that if I focused on those I could build an argument on why corn is going to 8. Just an example crude oil is setting up a strong bullish trend line and speculators who trade on only technical will see that and want to jump on the boat. Once that happens and crude adds another 10/barrel those who are late to the party may look for a related energy commodity (corn) and realize that it is so far off the lows that it too could begin to rally causing a new wave of fund money pushing corn higher. As for ’13 crop, I have already extended into that. I am about 20% sold with option spreads costing about 12 cents at the time. Dumb or smart? I have no idea but the price was good so I am going to play on the safe side.
As for a few hundred thousand hurting as much as a few million, it does. Depending on the size of the operation, a large farm losing a million hurts just as bad as a small farm losing one hundred thousand. 20/ac is still 20/ac. It hurts. However, I wouldn’t mind seeing 2.50 corn for a year or two. That will flush out the high cost operators and settle down the land market. We have a guy that in the last two years ran cash rent from 45 as a high up to 150 as a high bid. Now that is spilling over onto everybody else.
I am not trying to predict the future or say this is what will happen, it is just the other side of the coin on how bad things could go if some of this comes to be true. Only time will tell. Snowing here for the 3rd day, first real moisture we have seen since August. Maybe these weather patterns are changing….. I sure hope they are!
Permalink Reply by Brian Grossman on When you contract do you cash contract through the local elevator or are you hedging on the board?
Permalink Reply by Morgan McNeal on Hey i never saw this message till now. I contract through the local elevator. I took a marketing course at K-state while i was still an economics major, but when i switched to agronomy i never got to take the advanced courses. I understand the basics of it such as how the calls and puts work but i lack the confidence to do any serious trading. Just so much risk if you arent completly sure of what you are doing. That was one reason i switched to agronomy. Its something i can see and feel. I feel more comfortable making better agronomic decisions, reducing costs and boosting yields.
Permalink Reply by Brian Grossman on Yeah I know exactly what you mean. I studied the markets all through my college career, thought I was ready for it but once the money became real rather than just numbers on a screen it was a whole new story. When I started doing our own marketing I was too young, inexperienced, over confident, and got my ass kicked by it. I then was faced with the choice of stop doing it completely and lick my wounds or look for a new broker to help me dig myself out of the hole I created. After about a month of looking and talking to about 50 different companies and found my current broker who is with Zaner Group LLC in Chicago. He dug me out of the hole and has actually turned us positive on the marketing side. If you would like his info let me know. I trust him with my life and I think that is an aspect that is necessary with a broker. After my yearlong nightmare before I changed brokers I spoke to a lot of my teachers and said they do not stress the reality of a margin call and strategies to deal with them. Now I would never stop marketing through the board but for anybody getting started I would say to find 2 or 3 brokers that understands you and young and inexperienced and use all of them to bounce ideas off of so you can learn faster and make sure that none are trying to take advantage of your age.
Permalink Reply by Parker Smith on I cannot imagine agriculture to stay this way for too long. I could be wrong, in some ways I hope I am wrong, in others I hope I am not.
If land prices, and rent prices went down that would obviously be great. But with that commodity prices will drop as well. I hear every week that prices are only going to rise, then I also hear that this is just a bubble and it has to burst sometime. Who knows.... I just hope I am able to have the future in farming I desire.
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