Perspective: Some Wheels Will Have to Come Off

January 27, 2016 02:23 AM
Perspective: Some Wheels Will Have to Come Off

Generating a winning game plan for 2016 is not easy. There are numerous scenarios that will erode farmer equity even after vigorous efforts to minimize cost and maximize revenue.

Judging from the flood of advice from ag economists, this situation is common across regions and sectors. Yet despite the strenuous urging to make this or that adjustment, most of us are taking less-than-drastic actions. Cash rents have drooped, not dropped. Input prices are not plunging because of buyer intransigence. Land prices remain un-collapsed. An outside observer might think our profession is shrugging off both expert advice and our own forecasts.

Wanting The Improbable. This slow response is not just understandable but probably inevitable. Until the battlefield is littered with corpses, many of us will not acknowledge the reality of the financial threat. We do not operate so much from probabilities as examples. We might need an example close to home to make us face up to difficult adjustments. Look at our response to resistant weeds for confirmation.

Years ago, I had a friend stun me by saying his bank was “shutting him down.” This was during less dire circumstances than today, and he was an accomplished operator. That was a game-changer for me.

This reluctance to take early action often is criticized by outside observers but arguably is logical. To begin with, “the miracle” we all hope for has a tiny but non-zero probability. A major drought springs to mind—somewhere else, of course. A larger ethanol mandate is astronomically improbable but not impossible. Collapsing input prices might offer cost relief, or landlords might suddenly realize cash rent levels are unsupportable. And a few of us remember the extra Agricultural Market Transition Assistance payment, so there is precedent for extraordinary government intervention. 

Thanks to “sportspeak,” we have elevated wanting to an aerobic activity. For example, “The Cubs just didn’t want the pennant enough this year.” If you assume it won’t happen and take prudent measures—such as giving up high-rent acres—to survive under far more likely conditions, you won’t capitalize on “the miracle” should it occur. Someone else will. The “wanters” could win, so to speak. So we work on our wanting game, not our defense.

Financial advisers lament loudly that farmers are vulnerable because they didn’t follow their expert advice. Only that advice is identical to advice from any year in my lifetime. Check the back issues of Top Producer for, say, 2008 and see if any voice urges producers to borrow every dollar and buy every acre. Instead, you see cautious columns that could be published today. Yet those who flew against this wisdom likely safeguarded their farm for a generation. 

Wrestling With Reality. So we all struggle, less to avoid the train crash and more to get toward the back of the train, where the bodies of our colleagues ahead will somehow cushion the impact. After all, we won’t all go out of business, we reason.

We have essentially two strategies for these situations. The first is government support. I consider this very unlikely and even less probable than a devastating repeal of the ethanol mandate. The second response is actually a constant tactic that has taken on new urgency as profits disappear: economies of scale.

Getting bigger has been the universal solvent for farm liquidity, but there is no reason to assume it will continue to work as well or at all. By August, clues might emerge that begin to put the debate to rest.

The value of old-crop inventories and size of ’16 output will be clearer. Another indicator will be the second rent payment: Does it get paid? Now add revelations of operators seeking legal debt protection. Unpleasant probabilities could be revised upward.

If history offers any guidance, even undeniable spreadsheet projections now will not change our path. Tripping over a fallen comrade this summer will.

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Spell Check

Brent O
Monticello, IN
2/3/2016 06:19 AM

  Being 54 years old and Farmed as a profession my entire life. Your article is right on. Ask any ex-independent livestock producer who held on too long and eroded all of his had earned equity and demoralized him and his optimism


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