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Post by Oatking on Oct 9, 2022 18:41:39 GMT -6
Thought I would get some opinions on farm debt. Added a poll so you can answer the question anomalously. With the current inflation and high grain prices now that could head higher this winter what will that do to our bottom line if other things like land rent or crop inputs go sky high.
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Post by kevlar on Oct 9, 2022 18:57:46 GMT -6
Good times will break more people than hard times.
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Post by Beerwiser on Oct 9, 2022 19:41:54 GMT -6
I think a guy needs to look at debt/ac. A small guy like me farming 5 quarters is going to be less than a guy farming 50. Regardless I think farm debt is on the rise.
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Post by meskie on Oct 9, 2022 20:44:58 GMT -6
It is hard for it not to be on the rise with how much things cost these days. Even decent used equipment cost as much or more then new did a few years ago. Dollars per acre debt would be a better gauge then just a dollar amount. Younger farmers just starting out would Have more dept then guys getting to the end of there farming career.
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Post by SWMan on Oct 9, 2022 21:01:15 GMT -6
Debt per acre is probably better, and even per your typical revenues or typical margin.
Also what the debt is on matters I think. Generally a bad policy to borrow money for iron if something older and less costly will do the same job(and honestly most jobs are able to be done with much cheaper 10 year old equipment). I used to have a signature on the old forum "Never borrow money to buy a depreciable asset", equipment is a depreciable asset. Bad business sense to pay interest on debt for an item that is heading downward in value. That sig ended up triggering so many people that I changed it. When I started farming I/we farmed with old stuff and rarely traded, only at the point when I had free cashflow did I start upgrading paint.
Land generally is an appreciable asset and something that, in the past, has made sense to borrow against. Mostly because it has steadily increased in value. Those days may be over if we see interest rise a bunch and other forces working against AG in general. Inflation can kick the can down the road further than one would think possible, rewarding the rich and highly leveraged but penalizing the poor. This nonsense has gone further than I thought it would already, fueled by easy credit and cheap debt. All it would take is a change in lending policy and many farmers would be trapped, which could be imagined to be part of the plan if someone was so inclined to think the gov't was perhaps not working in our best interests...
A good question would be: What percent of your farm does not have the banks name on it in some way/shape/form either because of debt or collateral on debt?
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Farm DEBT
Oct 9, 2022 23:03:27 GMT -6
via mobile
Post by cptusa on Oct 9, 2022 23:03:27 GMT -6
I believe that is called equity to asset ratio.
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Post by kenmb on Oct 10, 2022 9:38:56 GMT -6
I suppose debt to revenue makes most sense. Revenue per acre is very different as we move across the Prairies so debt/ac wouldn't be a very useful tool to compare operations in different areas.
Read an article this morning the bank of England going to keep hiking interest rates regardless of the pain inflicted. All under the notion they need to control inflation. Inflation was not a concern for 14 years but now it is. So once again, I suggest guys really think about what they believe when they say interest rates will never go up - they can't. Those guys are totally ignoring the last 14 years of crap that has gone on that has nothing to do with making your life better. Yet they assume that what happens going forward will all be done to make your life better.
And so debt to equity ratio can change significantly if that was the yard stick being used for borrowing. Debt to revenue is likely better. But of course revenues are variable so not as pretty to figure on with the bank when equity keeps going up and up yet revenue can go up or down from previous year. This is where people get into trouble with "good times" when they keep borrowing because equity keeps going higher. Instead of paying down debt and building savings.
I do worry about where to keep cash and savings. Wouldn't mind selling some grain but need to spend the revenue on some other purchase right away. Not my style to so that. It's the world we live in though. Either heavy on debt or people with savings are piled into stock markets to beat inflation. Yet stock investing used to be called risky, as in you could loose your retirement savings.
So debt is risky and savings is risky also.
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Post by Oatking on Oct 10, 2022 20:49:40 GMT -6
Saving is risky..... That is a good one kenmb. It seems not to long ago we were talking about negative interest rates. Not even a year ago I believe and now all of a sudden we are told interest rates need to be increased and quickly too. Why the rush all of a sudden!!! Wouldnt it make sense to have A sound economic plan to be presented to us , instead we are told every now and than a interest hike is given.
In regards to inflation , What has really changed over the last 10 years or go back fifteen years. Prices for goods has always gone up over time. I am not wise to the idea why all of a sudden our economy is going to tank because of inflation, high interest rates or even deflation. World is spinning pretty fast this days and if you dont stop and enjoy what we worked for and have acommplished you might miss it.
I agree cash flow is king still and debt to equity ratios is only as good as the cash flow to back it up. Banks love to see that ratio.
I still think guys will pile on more debt whether it will be more land or newer iron. I started just after the early 80s high interest rates and realize how tough it was for dad to expand the farm. Almost impossible plus you throw in the wheat board . Although he was happy with what he had. He seemed to concentrate more on what the crop looked like and not what his machinery looked like. Pretty good role model and teacher I had.
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Post by kenmb on Oct 11, 2022 8:39:11 GMT -6
I am a little shell shocked from debt growing up in the 80s. Dad was one of the bigger operations in the area in the late 70s and expanded with land and equipment in 1980. All with the same story we are experiencing today about things will never go down - neither grain prices or land. And all of a year later that changed. A lot in farming and capital investments is timing. And that stems from the fact there are people central planning your life. So the only way to know for sure what the timing is, is to know what the central planners will do. That is a fact. Anyone saying saying this or that won't happen then must know what the central planners are going to do. Dad hung on to what he had but one local big operator for example declared bankruptcy, played the game and kept home quarter and equipment, and got back in a few years later and is once again a big operation with lots of new equipment.
So even if things turn south, who knows what options will exist, what government payouts will be thrown around, who just decides to pack it in because it is time to cash out and retire rather than stick it out through some penny pinching times.
Savings being risky is something that occurred to me recently. It used to be that one should not invest in the stock market unless you can afford to loose it. Now think about what percent of people with savings and RRSPs are not heavy into stock market investments. I bet pretty much every person is heavily invested in stocks. People due to retire in the next 10 years probably still over 50% into stocks because bonds are a losing game with currency devaluation. And these last 10 years the common economic advice is pile even more into stocks because the central planners won't let that market fail. Once again, someone knows what the central planners will be doing. I don't know. I do know they really fuked things up over the last decade so I am not betting on them making the right move now.
So savings are risky unless it is cash. But cash is being devalued by inflation so that is a losing proposition too.
I personally don't see many options other than using dollars for exactly what they were meant for - as a unit of exchange. Sell grain and buy another item of use around the farm. Sitting in cash, buying stocks, buying land as an investment, buying bonds, I think all have a lot of risk involved. I don't think land is a bad idea provided one is buying based on actual business plans, if the only reason a person is buying or can afford it is based on the thinking that at it will be worth more in 5 years than now, then that thinking is where guys may be in trouble.
We will see. It all depends on what the central planners do. I don't know. But I can say they seem to have missed the idea that land and houses inflated 2 to 3x or more over the period they never saw any inflation so my confidence in them making good decisions for my life exited the building about 10 years ago.
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Post by kenmb on Oct 12, 2022 9:34:34 GMT -6
Ok, yes it's just a "news" story but for us other guys, we need to understand the real truth that this "news" is trying to hide. www.zerohedge.com/economics/chicago-fed-president-says-rate-hikes-will-continue-even-if-it-leads-job-lossesSo a central banker, as well as other central banks like BoE are still saying rate hikes. Regardless if it hammers the economy and causes unemployment. The truth is ultra low interest rates, known as negative rates because asset price inflation went up faster than the cost of borrowing so you made money taking on debt to buy assets - actually caused a engineered boom in the economy. People were buying stuff, corporations got cheap debt to buy back shares, employment went to overdrive, etc. People who bought assets got rich (on paper) over a decade according to equity. Although if you never sold then nothing really changed over that period for you. So the central bankers are going to now, finally raise rates and hurt employment. The truth is employment was always going to go down even if interest rates stayed the same because all those people taking on debt would need to keep taking on debt to keep spending on material things to keep employment up. What is being totally covered up is the debt expansion causes demand. Low interest rates do that. But debt expansion is the driver. So debt expansion has to continue to keep driving things at the pace created by the initial debt expansion. Another way out is for personal earnings and thus spending to go up significantly so those earnings can drive the economy rather than debt. The problem is the typical home owner earns a wage and so does not really have an opportunity to increase earnings. It is far easier to add debt to inject into the economy and buy a house than it is to increase disposable income to inject in the economy, especially considering the debt that now must be paid down. The last option is more extreme manipulation and control of your life via central planning. So we will see what happens. But according to the latest "news", those saying interest rates will never go up need to start learning how the world actually works. Because they have been asleep for 14 years. I don't put much value on this news but if debt doesn't expand then people can't keep paying ever increasing prices for assets. Unless your profits go up to do it. And so house prices will be true indication of reality and it is only a matter of time when that indicator hits other areas. |
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Post by Oatking on Oct 12, 2022 18:32:13 GMT -6
More and more employees are going on strike. refusing to work and produce those goods drives price up even more and increases inflation. I wish we had a government that forced people to work and frowned on employee assistance.
These same employees who go on strike affect our farm goods and drives up their cost of our input and equipment expenses and debt. Its a vicious cycle now trudeau and his other liberal buddies have seeded.
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Farm DEBT
Oct 12, 2022 18:45:01 GMT -6
via mobile
Post by kevlar on Oct 12, 2022 18:45:01 GMT -6
[quote author=" Oatking" source="/post/17967/thread" timestamp="1665621133"I wish we had a government that forced people to work and frowned on employee assistance. [ Kind of like China? |
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Post by Oatking on Oct 12, 2022 18:51:54 GMT -6
[quote author=" Oatking " source="/post/17967/thread" timestamp="1665621133"I wish we had a government that forced people to work and frowned on employee assistance. [ Kind of like China? Ha Ha , yeah it does sound rather stiff I guess. I dont know if trudeau is any better than his communist counter parts some days. |
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Post by kenmb on Oct 13, 2022 8:50:48 GMT -6
I suspect a lot of union leadership gets their marching orders from elsewhere than their own union members. It's usually leadership that decides when a strike or wage negotiation is needed. Was reading this week about a couple unions on strike in France at refineries and the negotiations are planned for November. Think about that, and there are more examples. So a business is shut down, not producing revenue (remember the idea of capitalism and free markets) and workers are on strike pay - and this all leads to the idea "well, let's just talk about all this later".
We had a strike in Regina at the co-op refinery and all kinds of laws were broken with strikers on property, blocking truck traffic, etc. There were many occurrences. And the courts never upheld the laws in place and the police never enforced the laws. One of the reasons was they didn't want to create un necessary friction by enforcing laws.
So yes, I suspect there is stuff that goes on within unions that is not simply normal people having normal lives and doing things that are typical. And influence outside union leadership seem to help matters.
Anyway, on to today's news:
Fed on track to hike rates because of high consumer price index data. Say it isn't so.
And today's history lesson, lest you forgot. What's the Feds mandate granted by Congress?
Yes, the Fed was implemented to ensure stable prices, steady employment, and eliminate periods of depression as well as overheated economy. Basically the Fed was deemed necessary to ensure steady economic activity. And Congress is the supervisor to ensure this because it is Congress that passed the Federal Reserve Act and it is Congress that has the power to end the Fed anytime the Fed fails in its mandate. Oddly the news never talks about how Congress is monitoring the economy or evaluating how the Fed is actually doing.
This is why I often mention the last 14 years. Clearly the Fed and Congress feel the Fed is doing the best job possible in meeting its mandate requirements. The question you need to answer is whether or not that is true.
The Federal Reserve is an easy example to understand as it is openly stated as a privately owned and operated entity. And the role Congress plays in its existence is also matter of public record.
Will the central banks raise interest rates? Well, the Fed totally blew its mandate over the 14 years so I wouldn't bet too much about them halting rate hikes now because of impact on the economy. And let's not forget that the CPI is a bogus number that doesn't represent reality, much like GDP, but is also used to explain why policies are being implemented that go against what is good for you.
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Post by torriem on Oct 15, 2022 22:01:00 GMT -6
I don't think it's striking workers that are holding things up. After being shut down by governments all over the world, the truth is the pandemic taught corporations that supply need not rise to meet demand. In fact for a lot of goods it's incredibly profitable to artificially hold production back, particularly for things that people need regardless. Should have been obvious I suppose, but for whatever reason before this time companies acted in a far more "rational" way when it came to supply and demand.
As to the impending recession, tech companies in particular have been quietly preparing for it for months now. We're seeing significant layoffs in the tech sector. And we've got tech leaders like Musk saying publicly that some of the most valued companies have way too many employees. I fully expect companies like Microsoft to shed thousands of jobs. Raising interest rates won't actually help this and will probably make all our current issues a lot worse.
On the subject of farm debt, years ago our banker told us that he has farm clients who'd be sunk if the interest rate rose even a percent. Now I'm not sure if I believe him, as since then interest rates have risen at least that much, but haven't sunk anyone around here yet. If only we always had the benefit of hindsight. I'd go and tell myself 10 years ago to take full advantage of debt as a tool, and never pay cash for anything during the next 10 years. Would have saved me some money. Ahh well.
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