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| I'd like to come up with a unifying theory of running a farm business, but there are too many variables most of the time. However, there are times when we all get together (as a team) and grow a massive crop and keep doing it for some years. In this case (big crops) lots of things become familiar.
1. Crop margins go to zero or a little negative and stay there (it's what commodities do)
2. Land values finally crash when owners all run for the door at once and I would include some land bought by farmers for what are now unsustainable payments (not everyone, but enough)
2a. Almost no one will have the money to take advantage of the cheaper prices.
3. A lot of high priced machinery will be sold pretty cheap and will attract more buyers. The caveat there is the new lower income buyers may not have the money to maintain the machine (ever buy a used mercedes for cheap? it usually doesn't stay cheap)
4. Depending government leadership, we may find the government is the only game in town. Conservatives don't usually want to buy votes, other factions are good with that program.
5. Low prices will eventually attract more demand which will put some margin back into the business, but not a lot.
1 - 4 represent a lot of the 80's and into the 90's. The only nice thing about this situation is it's stable - not much change in prices or inputs and the crazy neighbor can't bid $100 more per acre without a scheme that results in jail time. However, rents are still a tougher deal since it's person to person and not a generic thing you can just shop around for. I would guess there will be some who understand farming and will adjust and many that will sell out rather than accept a lower return.
Since 2008 all bets were off. Lots of folks made more money than they ever had. Farms hired "office only" positions and really nice shops for new equipment went up (a bit of an oxymoron). With price advances having no end, folks paid all kinds of money for things because they could. It's interesting that the "old money" was worth so much less in that environment. I usually thought old money waited for near bottoms in values. You can't have old money if it gets spent. Today we talk much more about basis gains where a day's price move in the recent past was 10x any basis change. It's really not practical to analyze the past bull run for trends since things were going so many different directions. I guess it's good since someone has to buy this equipment new so I can buy it used.
What should happen during good times is debt being retired and maybe a few taxes being paid. However, many buy more stuff based on this new plateau of income and continue to delay taxes. This program is difficult to turn around and moreso since the amount of dollars we deal with now is much higher than in the past (a little off farm work or some backyard pigs won't pay the bill).
Fry mentioned positioning his debt to coincide with a bottom in the farm economy. I think it's possible, but it's usually the case that if you are grain only, the circumstances can not be avoided. If you are diversified some it's easier to be countercultural, but that comes with it's own set of baggage (I still smell piggy and I'm sore from loading and sorting this morning).
As was said in the Fry post, it's important to keep looking for more demand. The grain side of me got a big gift from the government with ethanol. Government gifts come with baggage and strings that can be pretty undesirable. It's better if we can develop long term markets that sustain themselves without special regulation.
Disclaimer - this could all be nonsense
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It is what it is
