Uncommon Prosperity
Dr. Michael Duffy began a presentation at the American Agricultural Law Association annual conference with a quote from Neil Harl, who said, “farmers are the world’s best economic citizens; in the face of higher commodity prices, they increase production every time and drive down prices which destroys their own prosperity.” This quote may not be very flattering to farmers, but it illustrates a hard economic truth. Dr. Duffy’s presentation highlighted many recent unprecedented changes in the agricultural economy. For example, the majority of total production from farms is coming from fewer farms with much greater production. This is not news to most. It is frustrating, however, to learn that since the 1960s, the share of revenue from that production making its way into the farmer’s pocket has steadily decreased. As revenue increases, so does the cost of inputs such as chemicals and seed, as well as farm machinery and equipment. Simultaneously, while farmers have and spend more money for inputs, larger machinery, and farm labor, supply goes up, thus forcing profits down.
These economic trends have been a boon for farmers around the country, but the rest of Dr. Duffy’s presentation focused on the downside of the uncommon prosperity being experienced by farmers and ranchers; it probably won’t last long. Dr. Duffy believes we are already starting to see market corrections that will eventually mean decreased revenue for farmers. Some experts are concerned that we might see another bubble burst as we did in the early 1980s. These were terrible times for farmers and ranchers, and we are fortunate for the heroes that stepped in to help, such as one my mentors, Sarah Vogel.
Fortunately, Dr. Duffy does not believe we are likely to see a bubble burst as we did during the farm crisis, but likened the probable market corrections to a slowly deflating tire. Even if the market corrections are gradual, though, they should lead farmers and ranchers to a few important conclusions.
First, Dr. Duffy referred to unbridled optimism in some people. It is important to consider the market corrections that are coming down the pike when thinking of the future plans for the farm. Buying additional land or larger machinery is not necessarily a bad idea, but farmers and ranchers should keep in mind that the current prosperity in agriculture may be slowing down. When leasing land, farmers should think harder about the length of the lease term.
Second, farmers and ranchers need to think hard about farm succession planning. Simple wills and trusts may not be sufficient for some of the multi-million dollar farms around the country. As Dr. Duffy said, “cookie-cutter estate plans” will not work for many farms and ranches. It is crucial that farmers and ranchers find estate planners that not only know estate planning, but the important additional considerations necessary to draft a successful farm succession plan. And finally, farmers and ranchers need to do this sooner in their lives. If you are planning to pass the farm off to your children, remember that it should be a process taking place over several years.
The uncommon prosperity in agriculture is a welcome reward for the hard work farmers and ranchers do year in and year out.