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May 18, 2023 by Bill Biedermann is a co-founder of AgMarket.Net as it appeared on AgWeb.com The economic environment that we are in today is very similar to the 1970s and into the mid-80s. During that time many farmers went broke and, in the process, learned two lessons. Before I get to the lessons, look at this: Rampant inflation in the 70s into the early 1980s occurred. CPI rose from 4.2% going into 1970 to 12.3% (+129%) in 1974 to 14.4% in 1980 (+242%) according to the Bureau of Labor Statistics. CPI has risen from 0.1% in 2020 to 9.1% in 2022 (+91%). Following that era, the Federal Reserve Bank reversed policy to bring inflation under control and primarily used higher interest rates to accomplish this. This caused the housing market to slow (sound familiar?). Fed policy eventually cause corporate earnings to shrink, and layoffs were announced. That has already happened, and these announcements should begin to show up in the July or August statistics. Eventually, consumer spending peaked, and trading funds bought T Bills and bonds instead of speculative inflation-based food and fuel positions. That is happening in today's market also. These reactions to Fed policy combined with bigger agricultural production in 1984+ and stabilizing ending stocks, caused farm prices to fall. That could happen in 2023-24. As a result of investor money headed to the T Bill market and farm purchasing power shrinking, collateral:loan and revenue:loan ratios collapsed and caused an agricultural banking crisis. Land prices fell 43.2% from the 1982 peak to the 1987 low. The agricultural collapse of the '80s was the worst agricultural economic era since the great depression. During that time, many of your fathers and grandfathers went broke, might have been forced to sell some land in order to survive, or simply pushed through it and got to the other side. A few were able to take advantage of the collapse and turn adversity into opportunity. NOW...The Two Lessons Learned: click here. Tweet |
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