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I think most people have no idea how thin agricultural margins are to start with. They see that some farmer bought a $500,000 combine and think they got money j

I think most people have no idea how thin agricultural margins are to start with. They see that some farmer bought a $500,000 combine and think they got money just to throw around, but that combine is expected to last the next 40+ years and work near flawlessly for every harvest while performing multiple different functions simultaneously in a dirty and uneven environment. There is no alternative to a combine harvester since it is replacing the work of reaping, threshing, and winnowing all at once which without a combine would take thousands of man hours to do by hand every harvest. They might not expect for it to pay itself off for 30+ years. Nearly all farms operate on single digit percentage returns, a large number of them have been floating along on 1% or less for decades hoping to hit a bumper crop once or twice more in their life time. If they throw a million dollars at fertilizer, fuel, seeds, maintenance for their tractors, barns, silos, dryers, and any other specialized equipment for their particular crop, then earning $50,000 on that million dollar investment would be considered a great success. Earning $10,000 would still be considered some success because it is not uncommon to run multiple negative years in a row. Yield can vary 30% in a year from normal weather patterns, and the market can vary just as much or more, and they don't always align in a farmer's favor. So if your tech can't handle 99.99% uptime, and be fixed in the field when it does break on short notice with basic hand tools, farmers don't want it. A single failure at the wrong time can dump half of your million dollar investment down the drain which you were only hoping to make a couple dollars from to start with. It could set them back a literal decade or more financially because some shitty widget or sensor failed and they either couldn't repair it or the fault wasn't detected until it was too late.

Biologist123 4y ago
I appreciate the risk adjusted returns are poor. My question then is why farms as assets are so valuable. Seems like a disconnect somewhere.
- malandrew 4y ago
  I was looking into this recently and while I didn't find a great analysis, the impression I got was that financialization of the economy is a big part of this. There are tons of tax benefits for owning land and for many of them you don't even need to produce anything or even have a working farm. You just need to own eligible land. Combine this with the fact that farmers are often capital poor so a lot of farmland is leased from those that own it. We basically have the same issue that renters are facing in modern urban America but with farmers. Getting the financial industry out of assets we can't make more of seems like the obvious choice. https://farmfolio.net/articles/why-is-bill-gates-investing-in-farmland-how-much-does-he-own/ https://farmfolio.net/articles/why-is-bill-gates-investing-i... https://www.knightfrank.com/research/article/2022-06-08-why-are-uk-farmland-values-continuing-to-rise https://www.knightfrank.com/research/article/2022-06-08-why-...
hinkley 4y ago
And don’t forget that many farmers take low season jobs for supplemental income to keep things afloat. Some only make profit from this extra work. Their farm is in fact underwater. We talk about consolidation like it’s some evil conspiracy. But some farm kids realize dad is just holding into a dream that will never be true, and if none of your kids want the farm, on principle or because half a farm can’t support a used combine, then you’re going to sell or the kids will. Gabe Brown, if I’m remembering his back story properly, ended up with about a third of his parents’ farm, split with his siblings. He got hit with hail every time there was a storm, and tried permaculture (lite) as a Hail Mary. He scratched and clawed his way out of the red and eventually reassembled the family farm buying from neighbors and siblings. For his kids he established subsidiary enterprises and gave them to his kids instead of the land. Some stayed in At and some didn’t. One of his kids is slowly taking over management of his farm and he will get it eventually. Gabe probably has 10-15 years left in him.

Biologist123 4y ago

I appreciate the risk adjusted returns are poor. My question then is why farms as assets are so valuable. Seems like a disconnect somewhere.

malandrew 4y ago
I was looking into this recently and while I didn't find a great analysis, the impression I got was that financialization of the economy is a big part of this. There are tons of tax benefits for owning land and for many of them you don't even need to produce anything or even have a working farm. You just need to own eligible land. Combine this with the fact that farmers are often capital poor so a lot of farmland is leased from those that own it. We basically have the same issue that renters are facing in modern urban America but with farmers. Getting the financial industry out of assets we can't make more of seems like the obvious choice. https://farmfolio.net/articles/why-is-bill-gates-investing-in-farmland-how-much-does-he-own/ https://farmfolio.net/articles/why-is-bill-gates-investing-i... https://www.knightfrank.com/research/article/2022-06-08-why-are-uk-farmland-values-continuing-to-rise https://www.knightfrank.com/research/article/2022-06-08-why-...

hinkley 4y ago

And don’t forget that many farmers take low season jobs for supplemental income to keep things afloat. Some only make profit from this extra work. Their farm is in fact underwater. We talk about consolidation like it’s some evil conspiracy. But some farm kids realize dad is just holding into a dream that will never be true, and if none of your kids want the farm, on principle or because half a farm can’t support a used combine, then you’re going to sell or the kids will. Gabe Brown, if I’m remembering his back story properly, ended up with about a third of his parents’ farm, split with his siblings. He got hit with hail every time there was a storm, and tried permaculture (lite) as a Hail Mary. He scratched and clawed his way out of the red and eventually reassembled the family farm buying from neighbors and siblings. For his kids he established subsidiary enterprises and gave them to his kids instead of the land. Some stayed in At and some didn’t. One of his kids is slowly taking over management of his farm and he will get it eventually. Gabe probably has 10-15 years left in him.