The economic environment that we are in today is very similar to the 1970s and into the mid-80s. During that time many farmers went broke and, in the process, learned two lessons.
Before I get to the lessons, look at this:
Rampant inflation in the 70s into the early 1980s occurred. CPI rose from 4.2% going into 1970 to 12.3% (+129%) in 1974 to 14.4% in 1980 (+242%) according to the Bureau of Labor Statistics. CPI has risen from 0.1% in 2020 to 9.1% in 2022 (+91%). Take a look at these other indicators:
Following that era, the Federal Reserve Bank reversed policy to bring inflation under control and primarily used higher interest rates to accomplish this. This caused the housing market to slow (sound familiar?). Fed policy eventually cause corporate earnings to shrink, and layoffs were announced. That has already happened, and these announcements should begin to show up in the July or August statistics. Eventually, consumer spending peaked, and trading funds bought T Bills and bonds instead of speculative inflation-based food and fuel positions. That is happening in today’s market also. These reactions to Fed policy combined with bigger agricultural production in 1984+ and stabilizing ending stocks, caused farm prices to fall. That could happen in 2023-24. As a result of investor money headed to the T Bill market and farm purchasing power shrinking, collateral:loan and revenue:loan ratios collapsed and caused an agricultural banking crisis. Land prices fell 43.2% from the 1982 peak to the 1987 low. The agricultural collapse of the ’80s was the worst agricultural economic era since the great depression.
During that time, many of your fathers and grandfathers went broke, might have been forced to sell some land in order to survive, or simply pushed through it and got to the other side. A few were able to take advantage of the collapse and turn adversity into opportunity.
NOW…The Two Lessons Learned:
Although a lot of the above sounds potentially familiar, we are not expecting anything close to the 1980s collapse. However, the lessons and opportunities to gain from a milder version of the 1980s are, in my opinion, just as important as the story itself.
Lesson one: Watch your leverage. The likelihood of some form of history repeating itself is very high. Check your debt ratios. Make sure you are collateral-strong. Make sure you are cash strong and not leveraged. If you are, maybe you need to get those bins cleaned out. Also, look at your risk management practice. Do you have enough of your 2023 crop hedged off in order to protect your input payments regardless of where prices end up? You can do that and STILL get higher income of prices rally as long as you use a flexible price program. Our company has been preaching this for a long time and has even looked at the 2024 crop. In doing this, you will protect your revenue:loan ratios.
Lesson two: Getting yourself in a position to gain from someone else’s adversity always pays off. This does not mean you have to bury your neighbor and run around claiming victory. It is the opposite – if your neighbor gets into trouble for various reasons, you might be able to expand your land ownership and/or your operation. Getting land bought on a price sell-off is probably the biggest regret I have as a businessman and former farmer. Getting land bought at a younger age is also a major regret of mine. I believe that God is not going to make any more land and thus in the long run, it is the best place to position yourself. Taking over land, and/or bringing in a neighbor who fell on hard times is a win-win. You could have an experienced man out in the field for you and he still gets to do what he loves most. You get someone you can depend on, and he is still tractor-jockeyin’ and wrenching without all the stress of expenses.
I strongly encourage everyone 45 and under to talk to their dads and granddads. Find out how they survived the 1980s. What would they have done differently? What did they learn from that era? What did they do right? Then when you lay in bed at night dreaming about your future, think about how you can position yourself in the coming decade to reach all those dreams. If you are not in a position to take advantage of adversity, then you are subject to adversity. Agriculture is the industry to be in. The larger our world population gets the more important, respected, and rewarded as a producer or as a landowner you will be.