Mr. Market Wants Its Excess Profits Back
I have been meeting with several farmers over the last few days and we have been discussing how low crop prices will affect their bottom line profit. Mr. Market has a history of allowing excess profits to be earned by farmers (think of the first and second world war, the Russian Grain trade of the 1970s and the ethanol boom starting in the mid 2000s). However, Mr. Market also has a memory of allowing these excess profits to be earned and he wants those profits back. In almost all of the cases noted above, Mr. Market took back some or all of those excess profits right after these periods ended. The boom of World War 1 was followed very low prices in the early 1920s. We know what happened after the 1970s and now Mr. Market is now trying to grab those excess profits back from farmers from the “ethanol” boom.
As a farmer, you have several options to fight Mr. Market. You can:
- Do nothing and see the excess equity built-up over the last few years evaporate;
- Liquidate the farm operation. If you are near retirement, this may be the best solution. Otherwise, this is not an optimal solution for most other farmers.
- Hunker down and wait it out. This may be what a lot of farmers do.
- Be pro-active with cost management, strategic marketing, and other options to minimize what Mr. Market will claw back.
- Be opportunistic if you had “banked” those excess profits during Mr. Market’s generosity. You may find additional ground to buy/rent; partnerships with other farmers; helping older farmers pass on their farm, etc.
I am hoping that most of our readers might be in the last two options, but I know it is not true of every farmer. If you are in the first or third scenario, do not be afraid to reach out others such as advisors, farmers, etc. Everyone is willing to help, but it is hard to help if you don’t ask.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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