Monday, January 28, 2008

Now's our chance...

For the last two decades the big winners in agriculture have included many geographically fortunate operators. Their family farm just happened to be close to the new Interstate exit and they were able to to exchange 200 acres for 2000.

Of course, those 2000 acres were acres that locals failed to step up and buy. Or could not begin to, because of the price. Regardless, 1031 exchanges have created the seeds of an "agristocracy" based not on merit but good fortune.

But in fairness, almost all successful farmers today can be labeled as lucky. The accident of birth or marriage can make an indifferent ag talent into a success. When you don't have to pay rent, you can have a poor marketing or production record and still survive.

The current perhaps brief window of enormous farmer margins and low interest rates offers an unparalleled opportunity for farmers to reclaim some lost ground (literally). Best of all, 1031 exchanges may be a long time returning in force, judging from the commercial real estate market. If they are closing big box stores, they don't need new locations.
Taken together, these closings amount to a tiny fraction of the nation's retail space. But they're indicative of a larger retrenchment under way, one that is likely to continue. America's largest chains—from Wal-Mart to Home Depot, from Starbucks to the Gap—are all in slow-growth mode in the oversaturated domestic markets. Circuit City and Sears are just two national retailers who may find it necessary to shrink their national footprints in 2008. And with consumer spending having slowed, it's much more difficult for landlords to fill newly vacated space. [More]
This may be no more than a brief lull, but if farmers don't take advantage of it, we can assume they prefer to become a pure service industry to a "landed gentry".


Anonymous said...

"Now's our chance". Those geographically fortunate and/or "familially?" fortunate operators who have massive amounts of paid for dirt have encountered upon enough funds to justify pretty much anything they want. Those of us less fortunate still, as always, have to figure out how to compete against the lucky and/or good. While we may all be experiencing windfall profits to some degree, some of us need that just to get our house in order. For some of us, this economic upturn may be limited to positioning ourselves or the next generation to achieve phenomenal net $ during the next econmic happy times. I'm not crying in my beer here, cause it's all good. Very good. But for some, these good times are our salvation, thankful for the fact that we even get to participate. The end result will be further concentration within agriculture as the lucky and good are able to leverage their past to control more of the future. The gap between the good and the bad is going to grow exponentially. We just gotta make sure were on the good team. Thanks for your constant posting John.

John Phipps said...


Thanks for reading. Long-time readers will recognize my congenital inability to NOT advise buying land. One caveat - this commandment apllies only to land you can see from your farm.

My theory is based in the right of the landowner to choose the farmer for whatever reason he/she chooses. Hence superior farming skills are not a guarantee of a farm career.

Second, my rule of thumb is you get one chance during your life to rent or buy land close to you. If you only respond when conditions are favorable, you won't have many opportunities.

Third, the odds of success are much greater than we habitually forecast. At the depth of '87, the land foreclosure rate was 7%, or as I like to look at it - a 93% success rate. We grossly overstate the possibility and consequences of failure.