There is trouble on the horizon. Most won’t see it
until it too late like that shitty Titanic boat captain.
The farm sector is about to be a financial mess.
No the sky isn’t falling, it’s already fell. Most
people in ag have heard stories about the 1980′s.
It was a financial meltdown of epic proportions.
Let me refresh your memory as I understand it. I
was 3, so I don’t have first hand experience with
what went on then, and most guys that do are
dead or in a nursing home. Since they are
enjoying their NutterButter at snack time and
nobody is ever going to talk/visit with them about
this matter, I’m all you’ve got for the time being.
(if that made you feel guilty about not seeing an
old loved one, good, go see them jerk) Basically
banks lent capital based on collateral and when
the underlying asset (land) went in the toilet,
everyone was screwed. Their balance sheets
were a wreck and they then had to sell into a non-
liquid falling market that was in the process of
deleveraging. Long and short of it, it wiped out a
whole bunch of people and left a very bad taste in
everyone’s mouth.
That bad taste hasn’t went away. Ag banks still to
this day don’t put much emphasis on land
collateral. Yes it’s there and that is nice and all,
but this time it won’t matter. The reason we will
revisit the 1980′s style crash is because of debt
serviceability. <— (big word) Everyone still looks
to land values and wonders if they fall how will it
affect the overall health of the ag sector. This is
irrelevant because of the point about banks and
their view of land assets.
Most of the country went through the massive
deleveraging event spawned by the housing
crisis. I don’t like calling it that, it really should
have been called the “greedy gluttonous I want it
all” crisis, but people recognize it as a “housing”
problem. Same thing is about to take place in ag
for the same basic tenants. High commodity
prices brought about a huge influx of $$$ to
people that were accustomed to narrow
production margins. In effect, most guys won the
lottery for the last couple of years… and they
spent like they did. Tons of new equipment,
vehicles, services, etc… were bought and now all
that debt leveraged up on guys balance sheets
must be serviced with less revenue for the
foreseeable future. Low commodity prices due to
overproduction spurred on by high prices… sound
familiar? Just like the suburban house buyer,
they wanted it all, and got it, now it must be paid
for. (no MBS type vehicle in ag sector I think, but
maybe worth checking into) Some justified the
purchase citing tax savings, problem is they just
traded paying the tax man for paying the ag
manufacturing sector. And, most likely, in order to
pay off that debt, they will have to liquidate
assets, & that will bring the tax liability back to bite
them in the ass…
Question the validity of my argument? Go check
out the combine glut sitting on ag equipment
dealers lots. Demand has dried up as all the fun
money has been spent and the conservative
crowd isn’t biting the same bait. The buy up and
lever up crowd has stocked all the yards with late
model used equipment that isn’t selling in the
secondary market… sound familiar? Equipment
industry insiders know this, but aren’t about to
mention it because the sales of new stuff and
gaining market share is their core business. Only
way to keep the party alive is to have enough
cash-flow to keep going, and that revenue stream
will dry up as commodities fall below the cost of
production in a function to buy back demand that
was lost due to high prices.
What’s truly sad is this history repeating itself
didn’t have to happen. I don’t blame the
equipment manufactures, but I will say it’s easier
to get a massive equipment loan than it was to get
a mortgage in 2006 IMO. Guys who get screwed
this go around have done it to themselves. We will
see how it shakes out. A lack of rain was a factor
that helped bring about the last price surge (2012)
in commodities…Most generally, every farmer
wants rain, but my fear is that all too soon, some
will be huddled with their lenders praying for it to
not rain. <— (That’s how you make a big-ass
cliché dramatic close to some thoughts people…
#face)
until it too late like that shitty Titanic boat captain.
The farm sector is about to be a financial mess.
No the sky isn’t falling, it’s already fell. Most
people in ag have heard stories about the 1980′s.
It was a financial meltdown of epic proportions.
Let me refresh your memory as I understand it. I
was 3, so I don’t have first hand experience with
what went on then, and most guys that do are
dead or in a nursing home. Since they are
enjoying their NutterButter at snack time and
nobody is ever going to talk/visit with them about
this matter, I’m all you’ve got for the time being.
(if that made you feel guilty about not seeing an
old loved one, good, go see them jerk) Basically
banks lent capital based on collateral and when
the underlying asset (land) went in the toilet,
everyone was screwed. Their balance sheets
were a wreck and they then had to sell into a non-
liquid falling market that was in the process of
deleveraging. Long and short of it, it wiped out a
whole bunch of people and left a very bad taste in
everyone’s mouth.
That bad taste hasn’t went away. Ag banks still to
this day don’t put much emphasis on land
collateral. Yes it’s there and that is nice and all,
but this time it won’t matter. The reason we will
revisit the 1980′s style crash is because of debt
serviceability. <— (big word) Everyone still looks
to land values and wonders if they fall how will it
affect the overall health of the ag sector. This is
irrelevant because of the point about banks and
their view of land assets.
Most of the country went through the massive
deleveraging event spawned by the housing
crisis. I don’t like calling it that, it really should
have been called the “greedy gluttonous I want it
all” crisis, but people recognize it as a “housing”
problem. Same thing is about to take place in ag
for the same basic tenants. High commodity
prices brought about a huge influx of $$$ to
people that were accustomed to narrow
production margins. In effect, most guys won the
lottery for the last couple of years… and they
spent like they did. Tons of new equipment,
vehicles, services, etc… were bought and now all
that debt leveraged up on guys balance sheets
must be serviced with less revenue for the
foreseeable future. Low commodity prices due to
overproduction spurred on by high prices… sound
familiar? Just like the suburban house buyer,
they wanted it all, and got it, now it must be paid
for. (no MBS type vehicle in ag sector I think, but
maybe worth checking into) Some justified the
purchase citing tax savings, problem is they just
traded paying the tax man for paying the ag
manufacturing sector. And, most likely, in order to
pay off that debt, they will have to liquidate
assets, & that will bring the tax liability back to bite
them in the ass…
Question the validity of my argument? Go check
out the combine glut sitting on ag equipment
dealers lots. Demand has dried up as all the fun
money has been spent and the conservative
crowd isn’t biting the same bait. The buy up and
lever up crowd has stocked all the yards with late
model used equipment that isn’t selling in the
secondary market… sound familiar? Equipment
industry insiders know this, but aren’t about to
mention it because the sales of new stuff and
gaining market share is their core business. Only
way to keep the party alive is to have enough
cash-flow to keep going, and that revenue stream
will dry up as commodities fall below the cost of
production in a function to buy back demand that
was lost due to high prices.
What’s truly sad is this history repeating itself
didn’t have to happen. I don’t blame the
equipment manufactures, but I will say it’s easier
to get a massive equipment loan than it was to get
a mortgage in 2006 IMO. Guys who get screwed
this go around have done it to themselves. We will
see how it shakes out. A lack of rain was a factor
that helped bring about the last price surge (2012)
in commodities…Most generally, every farmer
wants rain, but my fear is that all too soon, some
will be huddled with their lenders praying for it to
not rain. <— (That’s how you make a big-ass
cliché dramatic close to some thoughts people…
#face)