55 Years And Counting From The Tractor Seat By bill whitman By the time this article is printed, our fields will be busy with harvest and grain trucks will be using our highways to deliver their precious cargo. I’m sure like most of you, I have taken note of the increases in grain prices. I’m struggling with keeping my cool because of the blatant abuse of farmers in marketing their livelihoods. Lenders pushed to have contracts established to cover operating loans. As of this article, farmers lost or rather didn’t receive 60 plus cents per bushel having to contract at $4.50 or less, even though we all knew $5 was going to be price come fall. Given all the other markers in the market, I wouldn’t be surprised to see the number settle around $6 for corn and $13 for soybeans. Despite the improved grain prices, agriculture, according to industry experts, is looking at losing two out of three young farmers due to debt loads that they have accumulated over the last three years. I recently asked a Farm Credit lender if this was anywhere close to being accurate. His reply was simple and reserved, “it all depends on how much backing the young farmer has beyond their agriculture interests.” It always amazes me that an economy that doesn’t hesitate to come to agriculture for equity needed to shore up the economy when it’s floundering, has no remorse to seeing young farmers fail. Each day, I hear about farmers of all ages who are dealing with debt. A great deal of this debt is due to equipment loans for equipment. In an economy that is suffering the effects of a $40 trillion debt, we’re told that inflation is the only way we pay it off. Six years ago, we were complaining about a debt of $28 trillion. I don’t want to argue about how we accumulated $12 trillion addition debt (COVID probably accounted for a lot of it), I only want to deal with how our farmers are being affected. Farmers and ranchers have only one asset that keeps up with inflation and that’s land. Every other asset depreciates or is a crop that is sold annually. I look at equipment manufacturers that pushed customers to take on inordinate amount of debt with new equipment in the decade before three years ago. With $6.50 corn and $16 dollar soybeans, these equipment purchases would pencil out. Many others, and I, warned that you never take on debt based on more than can be supported in a bad year. Manufacturers of equipment made loans for equipment purchases way too easy and that should have been a warning. Back in the late 1970s and early 1980s, we saw the same thing. I was a victim. After the good prices for soybeans in 1978, I took on more acres that required I get bigger tractors and combine. I had a local IH dealer who had two 806s – one had a turbo and the other a rebuild – and having two tractors would give me the option of having another operator along with having a backup tractor in a pinch. I think that the tractors and 5-bottom plows were priced at $16,500. I was turned down for a loan even with a 30 percent down payment. But wait! IH was more than happy to loan me the money for new 1086 and 720 plow, $23,000 with 10 percent down. And I did it. Even as a shoestring young farmer, I still recall Production Credit manager coming out to the field in the summer wanting me to borrow more money than I had asked for in the spring. Well, history not learned from is doomed to repeat itself. What is the immediate solution? I have written to Secretary of Agriculture Brooke Rollins, urging her to encourage the president to ease commercial bank requirements and allow banks to expand their agriculture-related lending. Those of us who remember the 2008 “bubble burst” know that some banks faced loan delinquencies of 10 percent or more, creating a crisis. Ag banks, by contrast, had a delinquency rate of about 2 percent. Yet policymakers believed that requiring banks to hold at least 50 percent of their loan portfolios in commercial loans – instead of the 90 percent or more many ag banks held in agricultural loans – would help stimulate the broader commercial economy. I know of several ranching operations in the West that were forced out of business as a result, because their long-standing ag banks had to rebalance their loan portfolios, leaving less money available for agriculture. It’s also imperative that despite the marginal bump in grain prices continue austerity practices into the next two if not three years. I listened to a young farmer’s YouTube video where he recognized that more yield does not equal more profit. Being more frugal with inputs this season, giving up maybe 10 bushels in yield, he finds himself with a surprising profit margin that conservative efforts improved significantly. The young farmers who survive this year are learning the principles of austerity. I wrote an article on Elizabeth and Adam Stonecipher a few weeks ago. There are two corrections I want to make. They have three children, not two, and their farm name and website address is www.550Wagyu.com I sincerely offer my apologies to the family. Horse Sense: Every day is filled with blue skies; just depends on how many clouds we deal with that determines how much blue we see. It’s still there. IndianaAg@bluemarble.net |
