Enjoy the good times, but don’t get carried awayI don’t know if the past few years have been the best stretch ever for farmers on the Northern Plains.
By: Jonathan Knutson, Agweek
“And bring the fatted calf, and kill it, and let us eat, and make merry.”
— Luke 15:23
“How do we know when irrational exuberance has unduly escalated asset values . . .?”
— Alan Greenspan
I don’t know if the past few years have been the best stretch ever for farmers on the Northern Plains.
A few other periods — 1910 to ’14, the 1920s, the 1950s, the mid-1970s — also brought good times for agricultural producers, or so it’s said. (I question how any era that involved toting heavy milk pails and other backbreaking chores possibly could be good, but that’s another column for another day.)
What I do know, and what the statistics clearly show, is that folks who grow crops have, on balance, made a lot of money in recent years. Specifically, 2007, 2008 and 2010 were wonderful; 2009 — so-so.
Oh, farmers try to spin their success: Our expenses are rising, things really aren’t so good, they say. Personally, I think producers would do better stressing that farming is cyclical and that the good times are needed to offset a lot of bad years.
Regardless of the approach, there’s no denying that the past few years have been terrific. What a run it’s been.
Let the good times roll?
Will the good times last? Impossible to say. There are just too many variables.
n What will the next farm bill look like? We safely can assume that federal ag spending will be cut. But we don’t know where or how deeply the axe will fall.
n Will the next 10 years be wet or dry or “average?” Will they be hot or cool or “average?” It’s reasonably safe to assume that some years will bring favorable weather and some won’t, but anything beyond that is just guessing. We know so little about long-range weather patterns.
n Will consumers, both foreign and domestic, have the sustained ability to pay for higher-priced food? The truth is, nobody knows.
n How long will speculators retain their fervor for corn, wheat and soybeans? Some already is gone, judging by what happened in late February.
Not the ’70s again
We can reasonably be sure that we’re not looking at a repeat of the dreary boom-to-bust cycle of the 1970s.
Back then, farmers bought land with borrowed money at double-digit interest rates — in hindsight, a recipe for disaster.
Today, producers generally are paying cash for land. Their investment may not turn out to be shrewd, but it won’t be catastrophic, either.
Whatever the future holds, the next four years almost certainly won’t be pleasant or profitable as 2007 to ’10. At best, rising rental rates will cut into profits.
Area farmers know that, of course. Just about every producer still in business is good at what he or she does.
But prosperity has a way of warping the judgment of even smart people who are good at what they do. Prosperity can be particularly dangerous for folks with big ambitions. So expect at least a few operators to expand imprudently and get burned.
It’s been said, and I agree, that our most important financial decisions come when times are good.
Judging by what the experts are telling me, area producers generally are paying down debt and reinvesting in their operation.
The future may be good, bad or middlin’. But whatever it brings, farmers are in better, stronger financial shape than they were a few years ago.