Success brings its own set of problems. Not exactly a profound thought, or an original one, but applicable to those of us who raise corn, soybeans, and other crops enjoying historically high prices. Let's face it, and I know it's impolite to mention it in public, but we've got a cash problem. Instead of the usual cash problem of too little of the green stuff, we've now got to figure out what to do with actual cash surpluses.
This is all a little weird, a tad strange, a bit disconcerting. We're paying taxes and looking for investments. Not a problem we're used to, but kind of fun.
It's important that we conserve our windfall, and grow it, because we'll need it soon enough. These prices can't last, expenses will rise to meet our new incomes, the competitive nature of farming will insure that profits will soon return to their normal lousy levels. We're being compensated for years of non- existent profits, and we know it is too good to last.
Not only that, but it's a sure bet that government support to our industry is about to decline. We've got to find a temporary home for our good fortune, and it isn't going to be easy. Here are a few options:
--The traditional parking place for farmers is a CD at the local bank. Well, that really won't work this time. We can get a return that is about a third of the inflation rate, pay taxes on our interest payments in an income tax bracket we didn't even know existed 5 years ago, and guarantee ourselves a negative return.
--Lock up the money longer term, and if inflation continues to increase, we'll lose capital at a rate of 4 or 5% per year. This is not totally satisfactory.
--The stock market has been on a tear, but has reached levels that are probably higher than our sick economy can justify. Price earnings ratios are at historically high levels, and the market has already discounted more economic growth than anyone really expects. The market has benefitted from the Fed's easy monetary policy, a fact which the Fed readily admits and even encourages, and with the end of quantitative easing and the increase in inflation, monetary tightening is sure to follow. The fuel for the market rise is about to run out.
--G. Gordon Liddy? Not for me. Even though gold has had a tremendous run, my general rule is never to take investment advice from cable TV shows or Glenn Beck. The recent collapse of the silver market is a reminder that precious metals are due for a severe correction. The other day, my twin grandchildren, three at the time, put their heads together and giggled, so we knew a plot was afoot. They then turned to the adults in the room, and announced, in a perfect imitation of those ubiquitous commercials, complete with the proper hand gestures, that we should buy GOLD. When your three year olds are giving you investment advice, a market might be a little toppy.
Of course, what most of us will do is buy farmland. We did. Yep, at the top of the market, when prices for corn and soybeans are at high levels, when interest rates are at unbelievable and unsustainable lows, when we haven't had a drought in nearly a decade, we bought land. Of course it won't work. Of course we'll be able to buy it cheaper in the future. Yes, I did notice what happened in the tech market in the 90's, and the housing market recently. Yes, I know it's a bubble. Of course it is.
Well, it was the neighbor's place, and we should be able to handle it financially, even with more normal prices, and we'll lock in the interest rates. And I'm also diversifying by investing my retirement funds in the stock market, and I've even bought a bit of real estate elsewhere.
That's all we can do, really. The only certainty is uncertainty, and the only way to prepare is to diversify.
It's also ok to enjoy, just a little bit. My wife will finally get her new garage this summer, just before the old one falls in, and I may trade off my pickup, the one with 300,000 miles on it. We have to prepare for a tougher future, but we don't want to miss the chance to have a little fun while the good times last.