Wednesday, July 05, 2017

A Bubble Bursting--the Farm Economy?

It's probably been years since I posted about the possibility of an agricultural depression, like the 1980's.  Farm commodity prices have fallen and been low for several years, and the value of ag land has fallen as well.  In the 1980's those two factors meant those farmers who had overextended themselves in an effort to cash in on the 70's boom in prices started going bankrupt.  But not so this time, at least according to this article.

The factors at work:
  1. farmers built up their net worth during the boom better than they did in the 70's
  2. interest rates now are low, in the 80's high
  3. lending on real estate was more rational 
  4. better safety net due to more crop insurance coverage.
Not really qualified to question any of these, though I would observe no. 4 conflates insurance coverage for weather and coverage for economy.  We did have some bad years during the 80's weather-wise, but I don't recall much crop insurance coverage for economy.

I'd also observe there are a lot fewer farmers today than in the 80's, which IMHO reduces the likelihood of any one farmer going bust--there's fewer marginal players in the game. 

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