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Monday, May 14, 2007

Prosperity choices...

I have been speaking about "Prosperity For Dummies - managing success after a long layoff" since January at the Top Producer Seminar. Economist Bill Edwards at Iowa State has been entertaining similar thoughts. We came to different conclusions.

His remarks are insightful to me because they seem ( with one exception) to be the same advice most ag economists have been giving my whole career. After acknowledging the financial reality of higher grain prices and pointing out farm equity positions are in the best shape in decades his primary advice:

Pay down debt. Which leads to the question, are there any circumstances when extension advisers would suggest we take on debt? Boy, if not now, when? Let's fact it - ag economists are dogmatically against using borrowed capital.

And many farmers agree, which is a good thing. These farmers, in my opinion will be less competitive in the rush to control land by rent or purchase, for one thing. And as I have been predicting for some time that explosion is just beginning.

Interest rates are historically low, debt service income looks more solid than I have seen, and the rewards to ownership (not operating) are huge and growing. Moreover, every piece of land I have purchased in the last 20 years failed the "cash flow test" (whatever that means).

Had I not ignored such stern advice to avoid debt, my farm would be much smaller and my equity drastically less. Risk aversion in hard times is one thing. Risk aversion in good times will leave you trailing the pack.

I note the standard call to avoid cash rent leases - good luck with that!

And as for his advice on the kitchen, I think he has it backwards. No other investment impacts every day more than that room. I would spend my first dollar there. It is not a luxury - auto-steer is a luxury.

Consider investing to improve happiness, not just a balance sheet.

[via Farmgate]

Labels: economics, finance

¶ 5:17 AM

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US Farm Report host John Phipps surfs the Web so you don't have to...

: Name: John Phipps; Location: Chrisman, Illinois, United States

Jan and I farm 1700 acres near Chrisman, IL. I have also written humor and commentary for Farm Journal and Top Producer for 13 years. Please visit my website (www.johnwphipps.com) to learn about my speaking services for your group's next meeting.

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John's World Monday, May 14, 2007 Prosperity choices... I have been speaking about "Prosperity For Dummies - managing success after a long layoff" since January at the Top Producer Seminar. Economist Bill Edwards at Iowa State has been entertaining similar thoughts. We came to different conclusions. His remarks are insightful to me because they seem ( with one exception) to be the same advice most ag economists have been giving my whole career. After acknowledging the financial reality of higher grain prices and pointing out farm equity positions are in the best shape in decades his primary advice: Pay down debt. Which leads to the question, are there any circumstances when extension advisers would suggest we take on debt? Boy, if not now, when? Let's fact it - ag economists are dogmatically against using borrowed capital. And many farmers agree, which is a good thing. These farmers, in my opinion will be less competitive in the rush to control land by rent or purchase, for one thing. And as I have been predicting for some time that explosion is just beginning. Interest rates are historically low, debt service income looks more solid than I have seen, and the rewards to ownership (not operating) are huge and growing. Moreover, every piece of land I have purchased in the last 20 years failed the "cash flow test" (whatever that means). Had I not ignored such stern advice to avoid debt, my farm would be much smaller and my equity drastically less. Risk aversion in hard times is one thing. Risk aversion in good times will leave you trailing the pack. I note the standard call to avoid cash rent leases - good luck with that! And as for his advice on the kitchen, I think he has it backwards. No other investment impacts every day more than that room. I would spend my first dollar there. It is not a luxury - auto-steer is a luxury. Consider investing to improve happiness, not just a balance sheet. [via Farmgate] Labels: economics, finance ¶ 5:17 AM Comments: Post a Comment << Home US Farm Report host John Phipps surfs the Web so you don't have to... About Me Name: John Phipps Location: Chrisman, Illinois, United States Jan and I farm 1700 acres near Chrisman, IL. I have also written humor and commentary for Farm Journal and Top Producer for 13 years. Please visit my website (www.johnwphipps.com) to learn about my speaking services for your group's next meeting. View my complete profile ARCHIVES April 2006 / May 2006 / June 2006 / July 2006 / August 2006 / September 2006 / October 2006 / November 2006 / December 2006 / January 2007 / February 2007 / March 2007 / April 2007 / May 2007 / June 2007 / July 2007 / advertisement MORE FROM JOHN On the Coffee Table What's for Dinner
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