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Serving: United States

Visible signs of the economic reset: Liquidity and supply in ag

As the “road warrior,” I once again earned my title on a 1,599-mile, one-week, extended car tour across five states in Midwest region of the U.S. During this road trip, the windshield appraisal of economic conditions confirmed the discussions in seminars and meetings over the past few months. The economic change in the agriculture industry continues to ripple.

In my marathon tour of five states, one sign of the economic reset was very visible. The amount of used tractors, combines and other equipment for sale on rural roads was surprising. As producers continue to face difficulty in meeting operating loan requirements, expenses and in general, maintaining liquidity, farm machinery is often the first asset to go on sale at reduced prices.

Not only were individual producers liquidating machinery, many equipment dealers had lots full of both used and new equipment. One major farm manufacturer that markets to 35 countries has reduced equipment output from 24 to 4 units per day. In recent years, this manufacturer sold one unit to each of those 35 countries per day. Today, of course, the strength of the U.S. dollar is only further inhibiting sales.

Further along in my trip we entered the southern plains region of the country. It was startling to observe the number of “for sale” signs in farm fields along the country rural roads. Just a few years ago, these farms and ranches would have attracted fast competing bids from buyers seeking to expand operations.

Supply, supply, supply!

As I drove, large piles of corn and other grains sat at terminals in the rural communities. The oversupply issue will be interesting to watch as many producers are now being forced to sell their grains to meet debt and expense commitments as opposed to holding out for higher prices.

In addition, the oil industry is now in steep recession. Currently, oil is in the $30 per barrel range. Driving through the heartland of the U.S., I observed that only about five percent of the gas and fuel pumps were active. The cash flow contribution of recent years is now in remission with no end in sight or hint of how low or how long oil prices will remain at seven year lows.

Continuing on my week-long car tour, I found that layoffs are now tearing at the fabric of rural areas dependent on energy, agriculture, and manufacturing. Those dependent on off-farm income could face significant challenges as these employment opportunities dry up.

Producers and landlords alike are screaming for real estate tax relief. Some producers are moving operations to neighboring states with more business friendly tax policies. Unfortunately, real estate taxes and family living expenses are both a bit like concrete; once it sets up, it is difficult to change.

In a very symbolic way, this road trip was a testimonial of changing times. In fact, based off these travels, I believe the next 12 months could be extremely interesting. As a globally interconnected industry, those in agriculture must continue to watch economic factors like manufacturing, oil, grain supply, land sales, taxes, employment and others. The economic reset is established, but outside factors will always bear some influence. 

TAGS: Soybeans Corn
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