Sunday, February 03, 2013

The wave of warning...  

Prophecies of financial peril for agriculture has hit a fresh peak, it seems to me. On the speaking circuit, stern econo-brains advise not just caution but almost bunker-building.
It wasn’t that long ago that corn prices were around $3. Even though current corn prices are near $7.50, Jerry Gulke, president of the Gulke Group, believes prices will be closer to $3 for this production year, and maybe the next several years. [More
I think what is happening in ag is a complex interplay of many forces. First, there is a strong urge to take a shot at being the Roubini of Agriculture by calling the end of the boom. This is certainly understandable but since we've been hearing that from many for several years, it won't work without some serious revisionist history. But more than few want to be in position to say "Told ya so!"

The length of the boom and the completely unpredicted size of the profit rise still has pundits stunned, almost to non-acceptance. You can hear a refrain of "It's a trick somehow" as well in current admonishments.

But I think a lot of this doomsaying is sincere concern over the outcome for farmers. None of us who occupy the public forum wants our words to be used to base bad decisions on. The only problem is the current spate of warning carries more risk that prophets acknowledge.

For example, some ag economists have been consistently skeptical about farmland prices, and especially when to buy (essentially, never). Those who heeded their advice, thinking themselves conservative planners, are arguably among the losers in the last few years. I know the stuff I paid "too much" for 5 years ago is how we compete for cash rent ground by lowering my average land costs.

But my biggest irritation about such econo-alarmist talk is the parameters of the future (prices, demand, etc.) don't really matter as far as farm outcomes as much as we think. Having gone through the last downturn in the 80's one thing stands out in my records and remembrances: the ranking of farmers in my  area stayed essentially the same - that is, at the end of the bloodletting we were all pretty much in the same competitive position as we were before, after allowing for career curves (retirements, health, succession, etc.).

So even if this is the Turning Point, we'll adjust as an industry just as we have done before. And while the '80s weren't financial boom times, we still had a default rate on land mortgages of 7%, or conversely a success rate of 93%. Because macroeconomic forces hit us all without prejudice, we all have fairly similar chances to cope on the way down.

In fact, looking through our old photos, those were happy enough times. The people in the snapshots (including me) were smiling. And I am confident we will when corn hits $4. 

If it does.


someguy said...

I've been at TP also the last 3 years. It does seem the bearish view is always dominant there. Of course, at the risk of being cynical, it does seem that a lot of people there make their living selling options and the way to sell options is to foster an increased awareness of downside risk.

Mark said...

In Effingham county, 1983 corn yields were on 15-30 bu./ acre. Soybeans were 9-18 bu./ac.
You may have survived, I have survived. But for the most part 98 out of 100 closed the shop doors. We are in a situation where ground here is selling for $12,000+ for that same poor farm ground. Yep we have livestock, Yep were buying the $8 corn from you guys again. Several have bowed out this past 4 months. (30%) it's got to have an effect on grain prices. Maybe 6 months from not but it will affect the outcome. This year there were more yields in that 0-12 bushel/ac. than above 30 bu/ac. Just as you I have a son eager to buy farm ground. I tell him, Go up north. They can weather it better. Bring the 50,000 hog operation where the corn is grown. You know how to compete with livestock. Make it pay off where you have an advantage. Save that trucking expense. Be Green !

John Phipps said...


I knew it was bad down your way, but I hadn't heard of the big exit. Who is ending up with the ground? "Outsiders"? Or the guys next door.

Is your area a low crop insurance participation region like mine (~60%)?

Frankly, I don't blame you attitude re: corn prices. We crop farmers showed no concern for our biggest customers (feed) in our fever for ethanol.