Approaching Farm Debt Crisis?
The comments below by Chris are accurate, I’ve broached this before in earlier posts, and Kemosavvy and I did a podcast on this a couple weeks ago.
I’m encouraged Chris is becoming more aware and hope he and all of you will become more educated on this…especially if you view food as important which hopefully we all do.
Those at Lowesville this past April will also recall my comments on this.
There are lots of banking troubles yet to come. Recently a gentleman pulled me aside for a private chat and confided that he’s working as an FDIC contractor assisting with troubled banks, specifically those serving the agricultural sector. Without divulging any secrets, his story was that there is a huge train wreck happening almost entirely out of sight within his sector of experience and operation.
The basic story is that banks providing credit and capital to large farms and related distributors either got in trouble or simply stopped the flow of credit/money or both. Because a farmer doesn’t have access to credit he can’t buy hay which causes the hay farmer to lose his cash flow meaning he can’t pay his workers or suppliers who in turn lay off their workers and so on and so on. Apparently it’s a huge and growing problem and it’s nearly entirely being hidden from view.
There is much happening here…I am resigned that this could be unavoidable and very possibly on a large and massive scale. I did a study on this which I discuss in podcast which I mention plus my interviews with local bank Presidents, loan officers, farmers.
It continues to get worse…week by week.
One mistake I did in the podcast is costs of a crop…the numbers are now $200/acre vs $100/acre.
Also…an acre is ~ 200′ by 200’…or 90% of a football field.
Here in Belgium, milk farmers have clogged the motorways several times with their tractors protesting against the collapse of milk prices. The price dropped from 44 cents/L in 2007 to 18 cents/L in 2009 – below the cost of production for many farmers. Also, many of these farmers made investments in 2007, which are now going sour. So, we potentially carry the risk of losing part of our milk production now, which may be needed sometime in the future.
Prices in Costa Rica are dirt-cheap at the wholesale level but ridiculously expensive at the grocery store/retail level. I hear complaints all the time from producers including that if prices stay where they are many will go out of business. Of course this is all anecdotal evidence, and I have no numbers, but it squares with the hard data I have seen and other stories I’ve heard including on this forum.
(note to self: talk to your farming relatives in Iowa about this stuff & see what they have to say…)
And here was silly old me…… Watching butter at $2/lb Actually, the sale was 5/$10 Milk on sale at $1.99/gallon off of a high in this area for $3.49-$3.70/gallon. And asking what was happening.
I can’t read those candlestick charts, and when Chris and Davos, and Patrick start talking M1 money, M3 money, etc…. (BTW isn’t head and shoulders a shampoo?) my eyes glass over and I have to run out into the "real economy" and look around. I don’t get some of what they say, but I can see it ~> out there "in the wild".
Yup, there is is right there in front of me. Falling dairy prices. Falling food prices? Huh… what’s up with that. My best friend’s father used to make farm loans. The man’s stress level was incredible. He said 30 years ago, "take the loans away from the farmers and the country will starve." His boss wanted him to call the loans on a few family farmers he had been a banker to for his entire career…. he up and quit! Told his boss to do it himself. BTW, this was no cheezy banker, my friend is still living off his father’s trust funds and we are 50 years old now.
Kids, if we screw-up what’s left of the small to medium size farmers…. well, I guess everyone has a garden, right?
I am holding out for a real cheap milk cow soon.
Every farm kid drives a new truck into town for school . Almost every Farmer gets an operating loan each year and pays back when they bring in the harvest . So any that have not stayed out of debt when they inherited the farm is going to get and eye opening experience. ( You know bigger better combine that they use 2 months a year .) They have operated for many years on govt. loans . OH and the Land they have been collecting on NOT to farm !!!! One farmer feeds 128 people .
Who will buy the farms ?
This post kind of died 2 weeks ago but I spotted some relevant data on farm costs in Illinois.
I enjoyed the Two Beers podcast. I am surounded by farmground in Southern Illinois and the subject of farming and farm economics is very interesting to me. I know for sure all of my neighbors rely on farm credit to plant their crops each year. As of right now "most" of the banks in this area are smaller, local community banks and they have told me that credit is "OK for now". You can read into that whatever you wish. I do here from the farmers end that credit is a major concern of theirs.
Anyway I found this link on Illinois crop economics from the U of I Urbana. The numbers surprised me. It seems the dollars per acre are much higher then what you are seeing in Iowa. Fertilizer is by far the largest cost. I thought fuel would be a bigger piece then what is indicated here as well. I am doing some of my own data gathering from local farms to see how these Statewide numbers hold up.
Also there is exactly 640 acres per square mile.
I talked to some farmers in the last two weeks . Many learned their lesson in the 80’s and are operating on no debt. Others who have been handed the farm have gotten bigger and bigger debt . May be a good time to buy a farm real soon. Most local banks have been very cautious on their bank/farm loans . The farm operations that got big and borrowed from big banks will probably be Govt. owned soon enough.
This situation is blowing up, thanks to the Collapse of New Frontier bank earlier this year:
The federal government today will auction off 418 farm loans stranded on the books of failed Greeley-based New Frontier Bank.
The auction is believed to be the largest sale of farm notes since the aftermath of the 1980s savings-and-loan crisis, and it has many Colorado farmers fearful they will lose their property as a result.
Farmers suspect investors or banks will snap up their notes at fire-sale prices, then liquidate their collateral to score a quick profit.
“It could be devastating,” said Bob Winter, a board member of the Colorado Farm Bureau. “That is what’s going to happen with many of the loans. The buyers will take what equity they will get and move on.”