BTO bankruptcy. Effect on remaining farmers.

[Guest]

where did big wheel go ?

[blackpowder]

What I think happens is they strive to get bigger. So they get there and aren't making money or not much money. So they think if I just get bigger my fixed costs are spread out even more so I will start making money. And so on and so on. Pretty quickly if they ever had equity it gets eroded with losses. Land appreciation allows them to refinance their losses until the losses grow faster than the bank's appetite.

From the book of Gary Pike.

[AlbertaFarmer5]

On the other hand, considering the new equipment turn over of this type of operation, that is likely a big benefit to all other producers. If they are eating the biggest chunk of depreciation ( regardless if it is a lease or purchase, the equipment loses value), it does help the rest of us.

[GDR]

On the other hand, considering the new equipment turn over of this type of operation, that is likely a big benefit to all other producers. If they are eating the biggest chunk of depreciation ( regardless if it is a lease or purchase, the equipment loses value), it does help the rest of us.

You might be surprised. Some of those multiple unit deals are pretty amazing. The dealers need to get the new ones out the door to get the used ones back also. They have lots of programs for new. Have heard in the past that the 3rd owner of a combine takes the biggest depreciation hit. I'm kinda a keeper not a trader.

[Sheepwheat]

Well there actually is an element of truth to that (bolded)statement. In fact, if you're not growing in some aspect, you may be - no, you WILL be - going backwards.

This is the voice of experience speaking. Quite a few years ago, I was in a very comfortable position, I thought. I could see how it was becoming a dog-eat-dog business and didn't want to be caught up in that mentality.

Took my foot off the pedal and thought I could coast on what I had built - small, mixed farming operation, little to no debt, a workable line of equipment, etc.

Wrong.

Inflation started to eat me up and before I knew it, I had to scramble to catch up. At some point, that becomes extremely difficult.

So standing still is not going to keep you in the racket for very long.

So what then - try to run with the big dogs?

Well, I think Jazz comes up with a great idea, bolded below:



I have often thought that there must be ways how one can grow their business without expanding the production base?

I know it can be done in our locality because of proximity to a bazillion types of end user products for what we grow,from livestock to grains.

I know of a few small scale operations that are doing some pretty simple, innovative things to add tremendous value to their products.

I acknowledge that there are areas that are quite far removed from the market for their production. I do not believe that such a circumstance always precludes them from finding and creating added value.

What I have observed is that growing one's scale of production is always easier than growing margins thru discovering extra value.

Someone has said that the main motivations in farming are greed and fear - not sure that this is always the case.

And sometimes it become painfully evident that some guys' egos are "writing cheques their body can't cash". They get all the sympathy they deserve.

I'm neither bragging or complaining.

They say confession is good for the soul. :-)

I agree. This guy was talking about acres expansion.

[LEP]

I have a neighbor who leases 22 combines and 11 tractors and 5 sprayers every year and 11 drills every 2 or 3. The only thing he complains about is the cost of the drill flip.

[Old Cowzilla]

I think lease deals have little to do with helping farmers with new tec but more to do with pushing competition of other brands out of an area. Than after other colors have been beaten up move in and put the screws to those same farms. The steel side of farming is brutal and guys around here are quick to poke holes in buy new, lease, or trying to keep old stuff running. The other morning when it was -30 it was the tractor with 700 hrs that didn't start but the one with 20100 hrs started just fine.

[GALAXIE500]

You can grow your business without buying more land. Any profits could have just gone into the S&P500 which grows at 7-9%. Risk becomes more exponential in farming the larger you get.

I shudder to think how much depreciation this guy paid trading his entire line of equipment every year. I dont know anyone that has ever done that. Shouldnt your employees be able to swing wrenches in the off season? Even getting everything greenlighted every year has to be cheaper.

Where would you even get such an idea from? Trying to duck taxes until you are insolvent?

I got a neighbor of mine ( BTO ) that has been buying and trading iron like a trooper for the best part of 10 years. granted when you have lots and lots of acres you can't be farming with junk either. Oddly enough his machinery has gotten newer and bigger , and the weed control issues on some of the land has gotten steadily worse ! Too much ground to cover and not enough time to do it and it gets done poorly is my conclusion.

I try and do it right the first time, which means a lot when you are a one man operation .

[AlbertaFarmer5]

In a bad year or string of years, I have no one to pay but myself. No iron payments. I can simply stop spending on stuff and live frugally until times get better again. Not fun, but I’ve done it innumerable times. No high priced rent payments. I am a minuscule farm, it embarrasses me how small I am.

Now these types have to pay their high rent, iron leases, multiple employees. They harp about supposed efficiencies. Tell me, where are those efficiencies when it gets down to it? I guarantee my costs are less per acre. Yet this is the model so many experts push at us?

I simply don’t understand. A profitable five hundred to thousand acre farm using old machinery and getting by for decades is not sexy enough I guess.

We both cut our teeth in a very similar environment in many ways. Affecting our risk tolerance forever.
Here, I assume every year will be a disaster. Rarely do we escape a major hail storm, way too much rain, early frost, early snow, late wet springs, cold wet falls, and the occasional untimely dry period. Sometimes all in one year.
I budget for 1 in 3 years to be a crop failure. That has proven too pessimistic lately(thanks in no small part to mitigation strategies, rather than benevolence on mother nature's part) But I still spend accordingly. Applying this conservative strategy has still allowed us to expand fairly fast, without using financing for anything except land purchases. I can't imagine still having to make equipment(depreciating) or inputs( many lost forever) or infrastructure (can't possibly recapture the sunk capital in anything with a foundation) or rent ( nothing to show for it) payments with no crop to sell. Can always sell land if worst comes to worst, and for my lifetime, sell it for more than it cost.

With the benefit of hindsight, there have been periods where we should have been more agressive. And there were consecutive wet and hail years where a big finance fuelled expansion would have been catastrophic.

Edit. In credit to the Gibbons area farmer, they probably didn't think a crop failure was even possible in that area, let alone consecutive major productions problems.

[blackpowder]

We should all read the book "The Subtle Art of not giving a F* ck. It would solve a lot of these problems.

[SASKFARMER]

Great book

[SASKFARMER]

If your thinking of renting an extra section or two and are going to pay 80 or more a acre rent. Realize fertilizer is way up and if you didn’t pre buy add another 20 an acre or more just for Fert.

Winning.

[AlbertaFarmer5]

We should all read the book "The Subtle Art of not giving a F* ck. It would solve a lot of these problems.

Fair comment. And as I said I'll give them the benefit of the doubt, the weather has not been kind to that area.

It however is my business if I have to compete with unsustainable operations. And it affects all of our abilities to compete on the world stage if our land costs are driven higher by operations which in the end aren't profitable at those prices.

[AlbertaFarmer5]

where did big wheel go ?

Must have kept on rollin.

[Gofer]

Fair comment. And as I said I'll give them the benefit of the doubt, the weather has not been kind to that area.

It however is my business if I have to compete with unsustainable operations. And it affects all of our abilities to compete on the world stage if our land costs are driven higher by operations which in the end aren't profitable at those prices.

"And it affects all of our abilities to compete on the world stage ...with those that are not profitable"
That is what happened in the latest area he expanded into and paid 50% above everybody else in the area to one landlord. Wonder if he got paid ?