Saturday, November 29, 2008

Moving the finish line...

I turned 60 today, and like Jan, experienced for the first time since ages 16 and 21 a mental milestone of existence.  For example, I now fall into new categories frequently when answering surveys - i.e. "over 60".  And suddenly the possibility of my own mortality seems significantly higher.

The moment caused me to reflect on those of my friends who have retired or announced plans to do so.  Coupled with all the analysis and musing over the economic situation we are struggling through, I am beginning to suspect bad news may be in the offing for younger farmers.

We can't quit and even if we can reasonably expect a comfortable retirement, our confidence in that calculation has been badly shaken. The reason is simple and common: we are exposed, more so than previous generations, to economic investments other than the farm.  As the steady growth of prosperity lifted incomes all over farm country, extra funds were targeted by advisers in magazines like my own as a chance to diversify.

This was not unreasonable advice, but to our current dismay, we found even prudent equity investments like mutual funds and index funds have been big losers, while the question for farmland assets is "Has the price increase slowed?"

I tried "diversification" and promptly lost about 85% of my investment in a technology fund in 2000. I wrote it off as more proof I had no idea what I was doing owning that kind of asset. Since that time, I have tried to make the case that non-diversification for farmers - putting all your eggs in one field, so to speak - was not to be despised. Knowing about the assets you own was important, I reasoned. 

We now know how much we don't know about many equity and debt investments, and sadly it translates into dreams deferred. What I'm trying to puzzle out is where the heads of Boomers like me are right now.

That cash rents are softening is obvious. We have already witnessed high-cash renters walking on contracts for 2009 and beyond. So both asset values and returns are looking remarkably less positive than just a few months ago.

One thing I will be talking bluntly about as I begin the winter speaking season is fear. We don't like to use the word, but fear is the precise emotion controlling our thinking right now.  As we age, the power of fear increases since we know we are not getting better and stronger and wiser, and even worse, we may suspect we are going the other way. Now consider most farm assets are in the control of folks who experiencing this higher level of fear.

At the very least, innovation and risk-taking (think about how foolish the idea of taking a risk even sounds right now) will slow to a crawl, perhaps more so than other sectors. It may be vendors and customers will face a surly, suspicious business counterpart, as well. The tenor of agriculture will find a new and I'm afraid, unhelpful edge.

So here's my current thinking. We have just added a few years to the exit date for a large class of Boomers currently farming. I hear the teeth of the next generation gnashing as I say this.  Meanwhile, the last two years have encouraged sons and daughters to some home with the allure of good times and ample profits.  Their dreams of driving the bus have likely been put on hold.

These two trends will increase generational friction as they are reconciled with reality. But it indicates to me there may be no more important management skill to upgrade than talking about money and fear.

And there may be no more important business practice to adopt right now than pre-emptive trust

More on that later.


Ol James said...

Happy Birthday Mr. John!!!
Funny how aging makes the mind work, more or less as the case may be.

Anonymous said...

John as a gen xer I have been thinking about this for awhile. I think that forward thinking boomer farmers who do not have a family member interested in the farm had better start looking for a gen x er who has magt. skills to operate thier business as the capital requirements to purchase those businesses may quickly outpace the availability to get the credit required to buy them out. why not be proactive and protect this investment instead of hoping thier neighbor will be there to buy it. The paradigm that is about to slap us all in the face may be that we have deflation of income but not of real assets. that leads to generational farms being able to weather this storm however not beigning able to expand. That is until the patriarchs start dieing off at a far faster pace. Then the off farm hier will require thier money upon death and then where do the remainig partners that are alive get thier money to buy them out. MAy you live in intersting times and happy b-day. JR

John Phipps said...


Hmmm. Why am I immediately slightly suspicious when an X-er suggests more boomers should retire right now?

Seriously, you make a good point. Too many of us watched our fathers essentially lose their equity when they could have quit in the late 70's in great shape.

And your thoughts about how the credit will have to be internal are also spot on, IMHO.

Thanks for reading.