As Carlson and others point out, the problem with structures, be they silos or livestock buildings, built with borrowed money really must be used regardless of whether or not they are profitable at current prices. Since they must be used to generate cash flow, production continues even in a down market, pushing the market lower or at least keeping it from recovering. In normal free market economics, if something is not profitable, production decreases and prices recover. With single-use investments such as livestock buildings built with borrowed money production doesn't decrease with lower prices. In fact production may increase (as in the dairies) as folks try to generate more cash flow to cover debt and expenses at lower prices, thereby guaranteeing prices stay lower. This is not free market economics but a downward spiral. Grazing operations on the other hand can respond to market prices...but that's another topic.
Edited by Jim 11/9/2018 17:43
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