Farmers are oddly isolated from the unemployment problem in our economy. We simply don’t witness it in our profession since farmers are, by definition, people who farm. "Unemployed farmer" is an oxymoron. Unlike others who walk past empty desks and get networking calls from laid-off colleagues, our numbers decline as producers disappear into other work. In the process, we often fail to grasp how debilitating the fear of unemployment is for most of America right now.
But there is another unemployment victim: our money. After dreams of having our money "work for us," we have discovered it can’t find many jobs we want it to do that pay a living wage.
In an atmosphere filled with economic jeremiads about deficits, bloviating pundits prophesy state defaults (California, Illinois, etc.) and sovereign debt collapse (Ireland, Greece, etc.) and then wonder at the thin bond market. "Doomspeak" may be good short-term politics, but it has corroded confidence at every level.
Welcome to the disintegration of safe passive income, folks. Because of too many frightened investors and feeble economic growth, investment incomes are collapsing. Unable to generate any interest without considerable or, worse still, unknown risk, the safe road of investing is looking more like a bypass to slow capital erosion. Trends suggest we could "Japan" along for some time.
While farmers can smile at historically low operating and real estate loan rates, ponder what this means for senior citizens who depend on savings interest. Going from a CD paying 5% to one paying 2% is like taking a 60% pay cut.
This is the unforeseen and frankly unfathomable consequence of enthroning cash as the repository of wealth. Who knew that the newly prosperous Chinese would keep on saving and that timid wealth would pile up around the globe like old magazines?
It’s a difficult adjustment for many to make. Those who earn a living counting and shuffling it encouraged cash reverence. Today, many money market funds have had to rescind fees to prevent negative returns for investors, and financial planners are revising downward how long nest eggs will last.
Cash made for easy comparisons, which can be important to those who derive status from such rankings. It is of course absolutely liquid and still is a good choice for spending. It just doesn’t work as well for saving these days.
It may take a few more years, until the last five-year CD rolls over (the cliff!), before investors believe other-wise. We remain committed to risk-free interest for financial security, stubbornly hoping for better payback, even as time passes. And passes.
Proven Performer. It is this desperate view of the future that will push dollars to some very unsafe jobs. The appeal of tangible assets is considerable. Ongoing gold rip-off schemes pop to mind. But many will also head to proven performers, such as farmland.
There are implications for farmers beyond the outside ownership. Landowner heirs may be more reluctant to sell even at high prices for lack of alternative investments. Seller-financed land purchases will look attractive for the same reason. Why not give a 3% to 4% mortgage to a buyer if you need some cash but not the whole sum? Family buyouts are similarly eased.
With returns for comparable assets running 1% to 3%, imagine what a $300 per acre rent would capitalize out to—even before value appreciation. Why can’t farmland without development potential be five digits?
- September 2010