Farmer John: I have never been so wealthy “on paper.”

June 27, 2011
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I grew up on a farm.  There was household optimism twice a year – at planting and again at harvest.  Never was my father so excited as when he was planting and nourishing those tiny plants, and never was he so relieved as when he could pull out the combines and “bring it in.”  It might not have been a good year, but it was at least time to put that one to bed.  The hand wringing and late night worrying were replaced for a few months with a much needed escape to the hunting club.

Farming is still full of hand wringing and late nights, but according to my friend, Farmer John, things have changed on the balance sheet side.  “I have never been so wealthy, at least on paper,” John recently told me over morning coffee.  “Hell, I just might be able to retire.”

My father wouldn’t have know what to do with that statement.  He couldn’t have imagined that a farmer would consider himself wealthy unless he was putting seed in the ground and feeling that early morning rush of activity in April.

But, today is different.  The median age of a farmer is 55.  Many of them are flat worn out, or tired of making a living at something they only do because they fell heir to it.  There aren’t nearly as many young farmers following in the footsteps of their fathers, uncles or cousins.  Opportunities have been elsewhere. Farming just looks like hard work. And it is.

Back to coffee time with Farmer John — I pulled out the most recent report from the Federal Reserve Bank’s publication, The Main Street Economist, Ag and Rural Analysis. The topic: Farm Balance Sheets: The Hidden Risk of Non-Real Estate Debt.

“It’s only 5 pages, John,” I said, “you really ought to take a look.”

“I would, but I got to go water the beans,” John said.

Ok, John, here are a few key points:

  • Farm Balance Sheets haven’t looked so good since the 1970s.
  • Non-real estate debt is so high that it could take those great balance sheets down very quickly.
  • Most of the debt involves farms with more than a $1 Million in sales or the operator is under the age of 35.  He or she doesn’t remember the 1980s farm debt crisis.
  • The 1980s Lesson: High debt-to-asset ratios and too much non-real estate debt can be a catalyst for bankruptcy, especially if farmland values drop.
  • Bottom Line:  The industry’s experience from the 1980s farm bust suggests that if the current run-up in non-real estate debt accelerates, the risks for farm bankruptcies could intensify should farmland values turn down abruptly.

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