Tuesday, April 13, 2010

Grandma on the front lines...

In a fascinating coincidence, I have begun thinking about what I think will be a true squeeze on many farm operations now aggressively expanding to bring in the next generation. (There is a good reason we're all about succession at FJ, for instance.)

But I think we could be headed for a difficult margin-erosion period and that all the histrionic pestering of Congress for mandated ethanol markets will arrive too slowly in demand (if at all).  Meanwhile, production is grow briskly.

The result will be fathers and sons eating through some high-priced rents (and Aaron and I will be poster-farmers).  This is pessimistic (except for the survivors), but I think a real possibility.  Of course, not gambling on rents has its own abrupt ending as well - like not farming.

So last week on USFR I mentioned our game plan in abstract: my ideal retirement will be one expense we will cut to stay in the game.  (Nice response here) The idea of oldsters leading care-free, independent, and fully funded life is fairly new, and for much the same reasons. It was a luxury that took resources from families and generations who needed them more.

COTTON MATHER'S BIG IDEA
Old people hanging on to their worldly goods also threatened the social and economic fabric of Colonial America. Celebrated Puritan zealot Cotton Mather is generally credited with stimulating the national appetite for witch trials. But few people realize that he was among the first to try to force the elderly to retire. ''Be so wise as to disappear of your own Accord,'' he exhorted them. ''Be glad of dismission. . . . Be pleased with the Retirement which you are dismissed into.'' Nobody listened.
BISMARCK INVENTS RETIREMENT
In 1883, Chancellor Otto Von Bismarck of Germany had a problem. Marxists were threatening to take control of Europe. To help his countrymen resist their blandishments, Bismarck announced that he would pay a pension to any nonworking German over age 65. Bismarck was no dummy. Hardly anyone lived to be 65 at the time, given that penicillin would not be available for another half century. Bismarck not only co-opted the Marxists, but set the arbitrary world standard for the exact year at which old age begins and established the precedent that government should pay people for growing old. [More]
So, if we have to economize, the first to go will be stacks of cash laying around just to reassure my increasing fearful mind. Further, in order to capitalize the farm and minimize debt, I will essentially become dependent on my sons, as they run the farm.  It will be their younger and brighter minds that determine dad's allowance, as it were.

This may be more natural than we think. Consider this story from about ants:
In a fascinating turn, Wilson does the opposite in the book’s middle section, titled “The Anthill Chronicles.” Presented as Raff’s undergraduate thesis, it carries the reader down the ant-hole to describe life from the ants’ point of view. No writer could do this better, and Wilson’s passion serves him best here. His language achieves poetic transcendence when describing “the decency of ants,” whose disabled members “leave and trouble no more.” When the nest must be defended, its eldest residents — with the least long-term utility remaining to them — become the most suicidally aggressive, “obedient to a simple truth that separates our two species: Where humans send their young men to war, ants send their old ladies.” [More]
The way I look at it, Jan and I have extracted wealth from the farm as needed to live pretty well.  Indeed, we now have a lower "long-term utility". We can do our share of the scrimping in the next few years, especially if it advances the lives and possibilities of the following generations.

14 comments:

Anonymous said...

John:

This is why the best advice to the new generation of farmers is to start funding their retirement now!

Anonymous said...

The idea too start funding retirement is a great financial plan but when you are 30 years old with a couple of kids and huge farm debts-payments it can be hard too convince spouse,family,banker,ect. that my IRA comes before other ... completely agree on a "financial plan" but in farming you have too constantly adjust....we survived the 70's and 80's issues and have done OK and thought our business plan is too "stay the course" and then the last 3 yrs.in hogs have cost us 10 yrs. of profits and I fear cash grains are next with the land prices,rents,machinery costs,ect..-regards-kevin

camel cowboy said...

I think you are whining a bit too much--are you sharing with the farm your FJ paychecks and speaking fees? You have already developed a system to surive without a real pinch of profits-

John Phipps said...

cc:

You make working off farm sound like a bad thing. What should farmers do with excess time? I get this all the time, and I think it is a function of what I do. If I were running trucks or an excavator on the side, I don't think folks would consider it "unfair" competition. I'm just not much good at those things.

all:
Actually I seem to have missed my point. The gist was not taking money from the farm for retirement would seem to be a useful competitive strategy - and it's what I'm doing. (i.e. more land owned)

Retirement with assured income is a recent luxury and feeds the ego of oldsters - the much vaunted independence. But it could mean farms like mine might make it for another few generations if we limited our expectations.

The idea of the old being dependents on children is part of the yeoman culture of farming, and I think it has some merit.

Anonymous said...

john, just a question for you, what would you do with your off farm income if you had a couple of nonfarming children ? would it be fair to them? i forgot my password, so call me AC

John Phipps said...

AC:

I do have another son off-farm. He is fully aware and knows THE investment will be the farm. His family does well as professionals in technology (OK - engineers).

He also has the same financial relationship to the farm: take from it what you need when you need it. Otherwise leave for invested there for the future and emergencies. Aaron understands Jack can return whenever he wants for whatever reason and the farm will support him somehow, just as it does him.

Both know there is now enough accumulated to fund the rest of their lives if necessary. The duty is to hand that same luxury backup to the next generation.

Anonymous said...

John: Do you really think it fair for a farm family that has this kind of net worth "enough accumulated to fund the rest of their lives if necessary" to be receiving taxpayer assistance in the form of subsidies from farm programs? I think it is extremely unfair and part of the reason this country is in trouble. Those that have, get more and concern about hypocrisy, well as long as I get mine I don't care about the country and it's future. It seems that we all behave like a bunch of lawyers now and our behavior endangers the future of the USA. If this country falls we only have ourselves to blame.

John Phipps said...

Anon (last):

(Sigh) I can only assume you are a new reader. Most everyone else has long since tired of my campaign to stop sending folks like me subsidies -if not stop them altogether.

Select "farm program" on the label list for some posts droning on and on about the absurdity and immorality of our farm program.

camel cowboy said...

Nothing wrong with off farm income--you have always been one to follow your heart(why are you farming? I have wondered that since your FB days)--the synergies and devotions of families is something that cannot be measured but can be observed! You know how blessed you are and live it everyday--keep it up-

Anonymous said...

John here in Ontario we are seeing as a result of gov't deficits that they are either not funding farm programs as well and that it it hard too extract money from a gov't that is "broke" too give it too "millionaires" as few full time farms have a net worth less than a million....big surprise for the green energy proponents this week when it was announced electric rates will increase this spring by 15% thanks too highly subsidized wind and solar projects...at a church function last night and people thought with all the alternative energy our rates would go down,,now they have some second thoughts about there love of wind-solar power...small solar projects get 20 yr. 80 cents kwh. guarantee when "delivered too your house rate" is around 6 cents kwh...counted 40 wind turbines on way too friends church 20 miles away and a few look nice --40 look not so good..in a 10 mile radius of us there are 1,000 proposed solar-wind installations in the most productive and diversified farming area in Canada--same latitude as northern California--regards-kevin

Anonymous said...

Sorry, didn't realize I was belaboring a previously discussed topic. Also didn't mean for it to be a personal criticism but the larger point remains, those that already have, get more from public funds and government. Not just in agriculture but agribusiness, oil companies, banks, defense contractors, the list goes on and on. For decades, public funds and regulations have been selectively applied by politics to stack the deck and tilt the playing field giving advantage to the already advantaged. So now we have problems with insurmountable barriers to entry, with too big to fail, ongoing industry specific life support and even bailouts in a whole range of businesses. This is not what the American economic system is supposed to be about.

Anonymous said...

john, i agree, the way you've been open and honest with your sons and have established some ground rules for use of farm assets and employment possiblities on the farm seems fair. i also admire the way you're putting your off farm income back into the farm. Sharing that with your sons and future generations. most of the farm operations in this area that are able to prosper have an older generation that shares with the younger generation by reinvesting in land , machinery, or cheap cash rent to their kids, and off farm income of some type is also quite common, some call that unfair competition, i just call it people who have done well investing in farming, nothing wrong with that. just the way it is, ok, sorry i wrote so much, these succession planning articles in the farm mags. drive me nuts, ok....AC

John Phipps said...

AC:

I think we share many common values. There a thousands of ways to grapple with the future and be happy, we're all trying to find one.

FWIW, our "succession" plan evolves and is certainly not one to be used as an example, but I suspect all of them are similarly unique.

I think you're going to be reading more and more about this as it is the topic of the decade until us boomers get outta town.

My approach centers on this century-plus effort to accumulate and pass on wealth to protect a family against some catastrophe, but in truth the older I get, I find the true disasters to be immune to money solutions.

Anonymous said...

the last sentence you wrote,true disasters immune to money solutions, you got that right for sure. certainly had our share, planted till 10, so anything else i write will be pure nonsense AC