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?
bust will be worse than the 80s as land cost (rent or buy) and equipment cost are skyrocketing. many farmers have leveraged themselves fiscally banking on high dollar cash crops this was almost exactly what happened during the late 70s and early 80s livestock was the only constant through the storm
Not going to argue with you. I think you could be right. In your opinion what is going to be the cause for the bust? Always looking to get as many opinions as I can.
I have to agree, my dad who started farming in the late 70s told me that when people start saying "it won't happen" or "new normal" is when the s**t will hit the fan.
Never heard that, but interesting.
My dad did and said the same as yours. To add to it my great-grandpa always said walk when others want to run and run when others want to walk.
I dont know that many guys that are leveraging themselves. Im sure their are a few out there. Probably more so on the side of rental rates, especially the rental auctions. But most of the guys that are buying ground and equipment are paying large down payments on it. Those that are doing that, when (if) we have a bust and land values drop it really wont affect them that much. Sure their asset that once was worth 12000 dollars an acre is only worth say 6000, but if that is still more then what your bank loan is you'll be fine. Banks wont foreclose on you if your land is still worth more than the loan amount. Again i see some farmers getting hurt, but as bad as the 80's I just dont see it.
I'm going to have to side with Morgan here. I don't see it either. There may/will be a correction - but I don't see a bust. Things like Crop insurance, locked interest rates on farm loans, and less leveraging by farmers (in my area most pay cash - this might vary from area to area) - are in the opposite of what happened in the 70's/80s.
I did some calculations yesterday on my break even points for this year, and calculated them on $4 corn, $8.50 beans, and $4 wheat. Even at those prices - my break even points are very low (below insurance level low).
I can only assume larger farmers are doing the same calculations before making purchases. If they are not - I look forward for when this "bust" will happen. I'll be waiting with a check to buy land.
people have short term memories it was only a short time ago we had 1.80 corn and 5.00 beans. I see lots of guys planning on 4.00 corn lol if only that was the low. If you need a example just look back at the hog market during 99-2001. I can say we loaded hogs on a trailer and the trucking cost more then the hogs were worth. They bottomed at 6.00 a hundred cost to raise them was around 35.00 a hundred. You have to control inputs and keep effeciencies high or the next boom may be your last.
I almost forgot about that, lol Dad had a full trailor load nearly lost it a couple times taking them up to farmland on ice only to find out the price hit the floor that morning. He was pissed.
i think we have a possibility, of low prices in the next year or two, but wont last long, and from people ive talked to and heard they believ 4.50 in corn is the floor which at that level is below cost of production.... but the economy and all other factors wont allow prices to stay low long due to such a STRONG demand for our grains....
The biggest key to knowing if we are at a new plateau will be seen this coming winter when we know how much corn we have. If prices can hold 4.50+ on a 1.6 billion carry over. Until then it is impossible to predict and even then it is still possible we could go lower yet. We have to remember we are still enjoying the benefits of a weak US dollar. The foreign demand for our products will be a different picture if the dollar starts trading in the 85-95 range rather than 78-81 as it has been. Also not to be forgotten, when we have a conformed 1.6+/- billion carry over could also be when we become faced with a severely slashed farm bill and the potential for rising interest rates.
Not to be the bearish guy in the group but there are a lot of comments made that are on pure speculation and bullish hopes. Bull markets and best cured by bull markets. Morgan you said 12,000 land going to 6,000 would hurt but not bad, I would have to disagree. A 50% cut in land value prices (yes I know you just threw out numbers but I am going to go with it), just on a full quarter 160ac x 6,000 = 960,000. That is a huge chunk to lose. Now let’s say this same guy owns another 2,000 acres and that takes a 25% since he bought it cheaper and never adjusted its value, so assuming that is valued at 6,000 then 6,000/ac x 25% = 1,500 x 2,000 ac = 3,000,000. Added together that is just shy of 4 million! And that is basing that their new land values range between 4,500 and 6,000/ac. Not unreasonable to unrealistic prices. However along with the 4 million loss in land value now that same guy has 2.5 million in equipment. Equipment values will drop as well, give that a 20% cut 2,500,000 x 20% = 500,000. Now the grand total of loss due to market collapse is 4.46 million. Now, add in that the Feds increase interest rates and operation loan rates move up to 7-10% (very possible). That will make for a budgeting disaster with high interest, 4.46 million in asset losses, and a rising dollar driving down exports as well and making crude oil drop causing a major decrease in ethanol demand. If this storm does come to show a 1.6 billion carry over could easily be joined with 2 dollar corn, and in my example I didn’t use anything that is unrealistic. All of these situations is very possible and they look like they may come to a head at the same time as well. Also don’t forget, China is trying to slow down their economy and Argentina and Ukraine are increasing corn acres.
Could this be 1979? Maybe, it will be an interest next few years to see how all of this plays out. As for a plateau it is impossible to guess now. I just hope that we are not all on one side of the boat and we eventually make the boat roll over.