OT -Plunge in Cattle, Corn and Dairy Prices

Bill VA

Well-known Member
With the plunge in corn, cattle and dairy prices I've been reading about here and other outlets - question....

Who is hurt more by the decline in prices? The BTO, the full time family farm or the day job guy that farms on the side?

Will the crash in prices cause the BTO's to crash as well and the smaller farmer with potentially no or less debt/overhead benefit?

Pendulums swing both ways. Can the BTO's survive a serious downturn in the ag markets?

Just curious.

Thanks,
Bill
 
The fellow that's had his money in the Stock Market and waiting to get into farming should be real happy now.Also stock prices falling are usually preceded by farm prices falling.
 
I dont want to sound like a woman, but in this case I dont think size matters. What matters is debt. If you owe money and aren't making enough to repay it is the real issue. Anyone big, or small that is on solid ground and doesn't do anything crazy should be able to ride this one out.
 
I think the q as posed is difficult to answer. for example there could a BTO that is debt free and one across the road that is highly leveraged, that guy will have a near impossible time making debt payments with $3.50 corn. the debt free BTO may be able to ride it out. However, is the premise of the q correct? I think corn has been drifting lower over the past 3 years. Milk is always cyclical, and the price per cwt today is not terribly unusual. One could make the case that yes, cattle price have dropped rather quickly, so "plunge" may be correct.
 
BTO's never lose they have no money ( of their own )involved,their lenders lose and when a lender has a loss it costs everyone, ( bankruptcy hurts everyone except for the involved party and the attorney's) the small operator will lose the most as they are the one's whom operate on their profits .
 
Big or small the debt and income determine the outcome.

The guy that works in town with a small herd can weather the storm much better than the midsized guy who has only farm income and needs to eat. Big operator that is leveraged will get taken out by a bank pretty fast - once the numbers don't support the loan the bank won't carry it knowing it will only get worse. Big operator with lots of equity can also weather the storm - until the equity is gone.
 
Where are these banks that don't require equity? Most of them are loaning money on mortgages that the government has guaranteed - no point in risking money where they can lose it.
 
I agree with those that say it has more to do with debt than size. I can't say for dairy or corn but it's never been a good idea to carry much debt with cattle. An old man once told me to never carry more than a 25% debt on good cattle prices because next year it might be 75%. That has been good advice for me, except I think it's more like no more than 10% on good prices.
 
Hard to say. Every operation is unique. I've heard rumblings that one 2 brother partnership dairy that built slowly over the years here is talking about selling the cows. Don't know for sure. I know I talked to one of them at an auction in March and he wasn't happy. I don't know that it'll be a forced sale if they quit. More likely just exasperation over working for nothing. There's another one that has to be in debt to the tune of millions unless I miss my guess. I haven't heard anything about their demise,but I suppose if it was to happen,it would be kept on the QT until it happened because of vanity.

Just speaking for myself, I almost wish I was crowding 67 so I could quit if I wanted to. It might be more fun if I didn't have to depend on these prices to keep going.
 
That is just not a true statement. Here in my county or within 50 miles of me I can think of at least 4 operations that farm over 4 thousand acres (so they probably meet your BTO description) that operate with NO debt. Or at least with the price of money and dealers offering no interest purchase they might take those offerings. Some of these BTO are 3 and 4 generation farmers and have made enough money to not have to borrow. As to who the bad times will hurt the most, bad managers that is who, ones that have paid too much for ground rent or made other bad operating decisions , NOT ALL BTO are bad folks , might just be they are hard workers. I knot that is no what most on here think but trust me there are some folks farming 4 or 5 thousand acres that step up ever time the plat is pass at church, support ball teams,rural fire departments and would give you the shirt off their back/ end of my rant
 
Like the others said anyone that can make their payments and pay all the bills will make it and very heavily endebted operations no matter the size will only hang on for so long.
 
(quoted from post at 13:19:08 10/24/16) With the plunge in corn, cattle and dairy prices I've been reading about here and other outlets - question....

Who is hurt more by the decline in prices? The BTO, the full time family farm or the day job guy that farms on the side?

Will the crash in prices cause the BTO's to crash as well and the smaller farmer with potentially no or less debt/overhead benefit?

Pendulums swing both ways. Can the BTO's survive a serious downturn in the ag markets?

Just curious.

Thanks,
Bill

I think a lot of the big operators have survived because they are very good operators. And many are diversified, they have outside businesses.
 
Cattle prices have taken a dive, but corn and dairy have been down for some time. BUT- both are slowly grinding higher. AND- Both offered opportunities to lock in much higher prices. So who survives???

Those with low costs.

Those who know their costs and have a plan.

Those who can utilize marketing tools, and can pull the trigger when they see a profit.

None of those are neccesarily linked to size or debt load... especially in today's world of low interest. Interest that can be locked at low rates for 20-30 years.
 
Everyone who is in the commodity agriculture business has to be aware that prices fluctuate, pay down debt in good years and eat beans in poor years, it's life, always been that way and always will be that way unless we turn into Cuba or Venezuela, and in that case there won't be any commodities to worry over.
 
My Dad lived through the depressions of 1919 and 1929. He always said that those who were debt free with a little money lived well during those depressions. The big farms in the area went broke. I remember some of the land that was abandoned in the 1929 depression wasn't farmed again until after WWII started. I helped break up a half section of land that had gone back to Quack Grass. Not sure, but I think that was in 1947 or 1948.
 

I don't know if it works the same everywhere else, but around here they have a saying- "If you owe the bank $10K, the bank owns you. If you owe the bank $1 million, you own the bank." What I've seen is the small guys getting shut out and the big guys coming in and buying them with borrowed money from banks that have a vested interest in seeing them succeed. The BTO with a corp or LLC has limited exposure vs the smaller guy that's been trying to build on a shoestring where it's all in his name, and we have quite a lot of those folks around here. Maybe it's different elsewhere, but the BTOs here are pretty well protected from what I've seen.
 
You get tougher every time it happens. Trouble is,there's a new generation every time,who haven't been through it enough and believed the talking heads who always say "It's different this time". They're the ones who can't handle it. Then you always have the older generation who say "I'm too old to go through this crap again".
 
I don't know about that Kluge Vineyards owed Farm Credit around 50 Million$ when they sold them out Farm Credit only got back about 18 Million$ that's about as big of a farm loan
I've heard of a Million or 2 would be small potatoes around here some farm estates are way up in the Millions$.
 
(quoted from post at 05:18:30 10/25/16) I don't know about that Kluge Vineyards owed Farm Credit around 50 Million$ when they sold them out Farm Credit only got back about 18 Million$ that's about as big of a farm loan
I've heard of a Million or 2 would be small potatoes around here some farm estates are way up in the Millions$.

With land values being at least $5K per acre, you get up to a million pretty quick. Michigan isn't in the same league with Iowa, but there are people here farming over 10K acres. The average for full time guys might be 3 or 4 thousand acres.
 
A few years ago some young smart alleck told a friend of mine that were in a "new era" and corn would never go below $5.00 again! I wonder what he's doing today? Another was blowing about how he could make it feeding cattle $5 corn. I asked him what would happen if it went to $7? He said that would never happen. Quite ironic as I sold corn for a little over $8 not long after that. I wonder how his cattle feeding operation fared. Some people learn from down turns others don't. I remember the drought of 76 and the tough times of the 80's which has stuck with me. Younger farmers had never seen bad times until now.
 
Doesn't work that way. Lots of people owe a million to their bank (and some a lot more). With all the regulations if a bank finds themselves over extended they find themselves "placed under the control" of the FDIC - who then hands the assets out (sells at a super discount) to who ever they feel like. Look up what happened to Washington Mutual to see how fast it can happen to even one of the big boys.


The "BTO" that is incorporated usually has to sign a surety on any notes issued by a bank - meaning if the corporation goes broke the owner of the corporation is still on the hook. Otherwise the owner would pay themselves off and leave the bank holding an empty bag. Being incorporated only limits the liability from secondary creditors - but they probably won't get paid anyway because the bank gets its money first.
 
Milk has slowly crept up, but if the predictions are right, it is going to take a $2 drop for Oct. milk. The BTO's have a lot more equity to fall back on, but they eat it up faster also. The small guy loses a thousand a month and the big guy loses a million a month. If the trend toward larger and larger farms is any indication, I would guess the large guys can stand the loss better. My son is one of the smallest guys around who is not working off the farm and he's keeping his head above water, but there is stuff sitting around that should be repaired that isn't getting repaired because it will endanger his cash flow to a serious level. Regardless of size, one has to be very, very careful about expenditures at the present time.
 
(quoted from post at 12:49:40 10/25/16)
I don't know if it works the same everywhere else, but around here they have a saying- "If you owe the bank $10K, the bank owns you. If you owe the bank $1 million, you own the bank." What I've seen is the small guys getting shut out and the big guys coming in and buying them with borrowed money from banks that have a vested interest in seeing them succeed. The BTO with a corp or LLC has limited exposure vs the smaller guy that's been trying to build on a shoestring where it's all in his name, and we have quite a lot of those folks around here. Maybe it's different elsewhere, but the BTOs here are pretty well protected from what I've seen.

When you owe the bank $10,000.00; the bank sells you out and recover their loses.

When you own the bank a million; they keep you going becuase they know they can not recover their looses if they sell you out.
 

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