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Perspective: Where Are All the High-Beta Farmers?

February 29, 2012
By: John Phipps, Farm Journal Columnist

In our national economy, wealth and income are surging in wildly unequal spurts and abrupt reversals. While "boom and bust" is a cliché of classical economics, the duration and amplitude of current wealth changes at the top are unprecedented.

In investment circles, there is a statistic called the "beta" of an asset. Simply put, it is a measure of price volatility compared with the market as a whole. But it turns out that exaggerated instability is also an attribute of people, especially rich people.

Robert Frank, in his book The High-Beta Rich: How the Manic Wealthy Will Take Us to the Next Boom, Bubble and Bust, documents occurrences of nearly instant megawealth and subsequent breathtaking collapse. Frank is the "wealth reporter" for the Wall Street Journal (a job I never knew existed). With the flair of a reality TV producer, he examines how megawealth can come and go at the top in mere years or even months. More alarmingly, he suggests that such volatility will become increasingly common and profoundly disruptive for the rest of us.

Frank’s accounts of the winner/losers, with their outlandish windfalls and egregious spending, soon pall. There is nothing subtle about the moral lessons here. But it is worth pausing to consider why agriculture—or at least grain farming—has not produced more stories in the same vein. After all, ours has been one of the sectors with record profits largely accruing to a tiny number of producers. Yet crash-and-burn stories seem to be relatively few.

There are many possible reasons. The first is that absence of evidence does not equate to evidence of absence. Another is that our economic boom doesn’t come close to the billions of ephemeral dollars generated in the high-tech and real estate bubbles. Perhaps the scale of our good fortune, while awesome to us, is too small to fuel spectacular flameouts. Still, I know farmers who were merely prosperous five years ago and are now making millions. Balance sheet comparisons between land and equities suggest we should be feeling the "wealth effect" big-time.

More likely, perhaps, is a mundane reason: The rural lifestyle does not lend itself to over-the-top consumption. Without passersby to gawk or an ambitious entertaining schedule, why build a gargantuan mansion that requires support services that can only come from distant cities? To be fair, there has been an explosion in lavish farm building. But our love affair with new paint at least has intrinsic value and barely constitutes mindless consumption.

The performance of our high-fliers demonstrates considerable maturity and moral core. So we cannot rule out disciplined wealth management as a reason. Or perhaps it’s just too early in the boom cycle. Nor have we seen the results of the rise in "fracking."

It might also be that, in contrast to the boom of the early 1970s, for example, farmers are not starting quite so close to the bottom. The operators enjoying massive profits often already had comfortable, upper-middle-class lifestyles. Though in my early career, we rushed to experience the novelty of Las Vegas or Florida extravagance, we’ve already bought those T-shirts.

You’re Standing On It. But I would argue that the biggest reason we have not mimicked the high-beta rich is right under our noses. And feet. For most of us, the immediate instinct when propelled into a higher tax bracket was not to consume, but to invest in land.

The sky-high land prices set by farmer bids, however alarming they are for ag economists, might be the lesser of many high-beta spending evils. It’s like social media billionaires piling their profits into Swiss bonds. With little leverage used, even "conspicuous" land buying seems fairly benign.

There will doubtless be a few stories of failure by extravagance, and perhaps more by people exceeding their level of managerial competence, but I suspect our industry will be saved from real high-beta embarrassment by our insatiable attraction for dirt.

John Phipps is a farmer from Chrisman, Ill. He is the TV host of "U.S. Farm Report." Contact him at johnwphipps@gmail.com. For local station listings, log on to www.USFarmReport.com.

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FEATURED IN: Top Producer - March 2012

 
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