We came home to the farm in 1978. Julie and I moved into a four room tenant house on the farm we rented. Wood stove in the kitchen, large rodents everywhere, and when the rains fell, we were isolated from the rest of the world by up close and personal visits from the Tarkio River.
That first winter we hung blankets on all the doors to keep the wood heat in the kitchen, where we lived, except for quick dashes from the kitchen to the electric blanket in the bedroom.
Modest beginnings, but we had big plans.
The 1970s were golden times for agriculture. Many of my college classmates returned to the farm, and most of the rest took jobs working for Ag lenders of some kind. By 1983, most of the guys who had gone to work for the Ag Credit system were working elsewhere, and more than a few of my farming classmates had flamed out in the intervening years.
Feeding the world My plans for rapid expansion (we were going to feed the world, if you remember) had also run up on the shoals of an immovable object. Fortunately for me my problem wasn't high interest rates, but rather my 80-year-old grandfather, survivor of the Great Depression, victim of a bank failure and farm loss in 1931.
I vividly remember coming home from a land auction, sorely disappointed by our failure to buy the farm of my dreams. Grandpa, one of the world's most patient men, finally lost patience with my public pout. "Blake, when I was your age, I thought nothing could go wrong, but it can!"
I worked with Grandpa for nearly 30 years. That outburst (butt chewing?) was totally out of character. I'm sure he was often disappointed in my performance, but he never said anything. Rather, he led by example. It can be humbling to be out-worked by somebody 56 years your senior. I'll always remember his advice, which proved invaluable to me as I watched my peers struggle with payments for land that was purchased at the top of the market.
Growing economies I thought of that day, and the stress agriculture went through during the first part of my career, as I sat through a portion of the recent Kansas City Federal Reserve Bank Regional Symposium on "Farming, Finance, and the Global Marketplace." Lots of optimism there, and rightly so. Global economies are growing, and the portents for agriculture are positive.
Lots of statistics, but a couple really stuck with me: 1) USDA estimates that non U.S. income will grow by 40 trillion dollars in the next twenty years and 2) the income elasticity for food in the rest of the word is over 0.5.
Cobwebs in my brain make my back of the envelope calculations a little shaky, but if I remember Econ 50 right, that means that over half of additional income in the rest of the world is spent on food. Twenty trillion more in food demand in the next twenty years.
Total U.S. purchases of food are just over a trillion dollars a year. The world is getting ready, if my calculations are correct and if the projections of economic growth are anywhere near close to the mark, to add a market the size of the U.S. domestic market each and every year for the next twenty years.
Grandpa, we should have bought that farm!
Farming teaches modesty I've not gleaned many lessons in the past thirty years, but I have learned the major lesson that farming teaches: modesty. Modesty in expectations and modesty about my ability to manage risk and weather. I can't predict the future, but I'm always sure that skepticism is the correct stance toward any such predictions.
We've been through two major booms in my career, the last one very recently, and the big question is this: are we in a breather brought about by the financial crisis, or is normality about to return with a vengeance? Can we expect to see the benefits from this predicted boom in global food demand, or will the iron law of farm economics reestablish itself?
That would be the law postulated by my grandfather all those years ago, which is simply that, things can go wrong, and probably will. Or, if you prefer the language of economics, try this: agriculture is close to a purely competitive industry, which means that all economic profits are soon bid into the factors of production. Long run economic profits (returns above what are needed to keep the marginal producer in business) are transient.
What can go wrong? Well, try this gloomy list.
1) Global food demand is only of benefit to a farmer in the Midwest if we participate in the global market. The U.S. is in the process of scaling back that participation, refusing to approve trade agreements that are clearly in our interest.
2) Many of the tools that make us competitive are under attack, from atrazine to chemical fertilizers to large scale livestock production. The last time we were promised a boom from world wide demand, we discovered the hard way that exports may increase over the long haul, but in the short term, a failure in export demand can leave us high and dry.
3) We've built a huge infrastructure to support the use of grain as fuel, but found that it's been difficult for the livestock industry. Not only that, ethanol is viewed with suspicion by those on the right because of subsidies involved, and those on the left, because of the perceived environmental costs. Take away demand from ethanol, and it would take a long time for the world to absorb the grain production now going into corn based fuel.
4) Add to this litany the absolute certainty of a long and sustained rise in interest rates, and retirement is looking like a good option.
We'll learn the answer to these questions in due time. Like most farmers, I don't want any more land, except my neighbors'. Out of respect for my grandfather's wisdom, even the neighbors' farms won't be bought unless I can bring a lot of cash to the table.
One thing is for sure: agriculture is viewed by most of the financial world as sort of a backwater. Rural people of doubtful smarts and bad haircuts out in their fields a long way from where the action is, in New York or London.
We farmers know better.