Believe it or not, now is a good time to start farming! Yes, economic fortunes have turned upside down when just three to five years ago agricultural economics were booming. Well, let’s take a closer look at the environment awaiting new farmers.
Today, most young farmers will need to borrow money. Even if you are a successive generation or have married into farm assets, chances are you may still have the need for additional, liquid capital. One of the advantages of today’s agriculture environment compared to a decade ago is relatively low interest rates. Additionally, if rate increases occur, they are likely to be small. However, it is important to note that while borrowed money is cheap, even low interest rates can become expensive if one lacks the ability to repay the loan.
The next five years will find many of our older generation with a more willing attitude concerning the turnover of or departure with their assets. In profitable economic times, it often makes sense for the senior generation to hold onto appreciating assets. Now, with declining asset values, particularly in land, it may make more sense to liquidate or transfer the asset. This will create additional opportunities to rent land in a lower range than was common just three years ago. Depending on transition plans, there will most likely be additional acres on the market as well. Remember that 1 in 5 seniors have no next generation to which they can transfer the business. Thus, there will be ample opportunity for non-family transitions and partnerships which could be a significant boost for any young farmer’s future.
Machinery and livestock
I continue to follow with interest, the changes concerning agricultural machinery and livestock values. In many cases used machinery is down 20 percent to 50 percent, much of which is equipped with new technologies and features. Older, more basic equipment is also available at discounted prices. These pieces of equipment may fit nicely into operations with those who possess a bit of mechanical ingenuity. In the livestock sector, the purchase price of most fixed and variable costs are also down and declining.
In recent years, both machinery and livestock continue to see moderating prices. This creates significant reductions in fixed costs which in turn produces a competitive advantage over those producers that entered agriculture during the peak of the economic cycle.
While it may seem odd to enter a struggling industry, it is true that economics always provide an advantage to those on the right side of the price. In fact, for those well-managed farms that continue to make incremental profit, the economic reset may also bring welcome opportunity. Regardless of your age, consider the favorable side of this economic reset and how it may serve your future goals.
For more from Dr. Kohl, follow his "Road Warrior" blogs.