Posted 4/6/2021 22:47 (#8937311 - in reply to #8937071) Subject: RE: Thinking about ag economy
I read the whole chapter of that FDIC report on Agriculture and the 1980's
Lots of son's with well heeled fathers can still purchase land today with dad's help.
They still misunderstand what happened in the 1980's They continue the myth that if only they would have looked at cash flow then the Ag Credit crisis would have never happened. They did look at cash flow but they didn't fully understand that the Schedule F is a fraudulent document to document an operation (and it still is) true ability to payback a loan. Too many games can be played in the reporting of income and expenses and few people understood it back then because they had never had to deal with what happened in the run up in the early 70's when all made good money and then spent it to avoid Uncle Sam's IRS on depreciable assets. All the old guys I worked with in the 1980's had no idea of the concept of accrual earnings and the effect of inventory changes. They had all been taught to use the Sch F add back Depr and int. and take out some small amount for living etc. Guess what Inventory changes matter, Lots of people spend a lot on living. Same mistakes are still being made today.
The real cause was the massive increase in variable rates which almost 100% fell on to the producer to deal with. Deals that made sense with 7% money had a hard time when it was 12.75% or 18%. The margin that a farmer keeps stays relatively constant over time but their cost of capital exploded if it was borrowed capital. Payments exceed all ability to service them and then the value of the assets start to drop and drop fast. Farm Credit (IE FLB and PCA's turn the spigot off starting in 1982 and it got worse fast) Hard to fathom today when they love telling you how great they are with their dividend's program today. Just remember history repeats it self. Read about their history in the 1930's mirrors what happened in the 1980's
Moral of the story, Get you own financial house in order, Keep liquid and keep your costs under control as that is the only thing in the end you can control. **** happens and you need to be ready for it. Hogs 1998 Dairy 2009, Cattle feeding 2015-2106, Grain Farmers 1983,1988, 1993, 2012, 2019.