I just received emails from ag lenders in the Midwest and Upper Midwest who say that killer toys are starting to get out of hand on some farm businesses. When economic times are good, the “exuberance” consumption and “froth” that Alan Greenspan mentioned when describing the U.S. economy before the crash rear their ugly heads.
While it is important for people to enjoy the fruits of the economic good times, too much of a good thing can result in irrational consumption or the undisciplined pursuit of more. Remember, in many cases it is the profitable years that get businesses into financial difficulty, not the hard times. The best business models are developed and sustained in those tough years.
Agricultural commodities are well into their eighth year of the bullish super cycle. Land in the Midwest and Upper Midwest is on a 23-year positive run of appreciation. This is changing consumption patterns of producers, many of whom are too young to remember the 1980s crash in the farm sector. A case in point is that family living costs are nearing $80,000 annually, up 107% over the past decade.
Killer toys, or the luxuries of the good times, are being seen everywhere. Big-square-footage homes in the Missouri countryside in the grain belt, lake houses in Iowa, airplanes and even helicopter purchases in the heartland by very prosperous producers are common occurrences. No, it is not just “new paint” or farm machinery purchases as a result of high commodity prices and oil and gas leases, but it is the sky boxes at football stadiums, as well.
This year I have been asked to conduct two seminars on cruise ships. The last time I received a request like this was in the boom years of the late 1970s and early 1980s when I was finishing graduate school at Cornell. This could be a reason for concern.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at firstname.lastname@example.org.