E. W.  Lang

The average on Class IV Milk Futures for all of 2022 gained 36 cents to this week and is currently $20.56 per cwt.  Class III Futures average $19.68 and are up 13 cents.  Block cheese is $1.89 per lb., up three cents from last Friday, barrels are up a nickel at $1.63, and butter is down three at $2.09 per lb. 

Spot milk, according to Dairy Market News, is at class to 50 cents over, indicating that milk supplies are roughly in line with need at plants.  One year ago, the many orphaned tankers of milk were running from $3 to $6 under Class price.

Conventional wisdom is that interest rates are going up over time.  Since July, the Ten-Year Treasury Note went from just over one-half percent to the current 1.5 or so percent.  In the course of world history, this past year has seen interest rates as low as ever.  And if you look at rates over 4000 years, the trend is a definite down over time, so I suppose that I can project 4000 years of increasing interest rates ahead and have a decent chance of being right, or at least not being proven wrong. 

At any rate, interest rates affect farmers more than most business owners.   The bone crushing ag depression of the 1980s was, in large part, a result of high interest rates.  Land bank raised our real estate note from 10 percent to 15 percent and that was not uncommon at the time.  We then moved everything to a local bank at ten percent with a one percent origination fee. 

Anyway, a fair number of milk producers have refinanced against increasing real estate values, and I've done that twice in my lifetime.   That keeps the cows on the farm, but at a cost that may increase over time, to the point of burdensome.  And that is just what happened on many farms prior to the 1980s land crash among diary, swine and beef producers who had equity in farmland.

I'm not predicting 15% interest rates or land losing 60% of its value, as happened 40 years ago. But the merit of maintaining a dairy enterprise - or any livestock enterprise - should be based on its own economic viability, not on the net worth of equity that includes ancillary assets like land, savings from off farm income, wind turbine income, stuff like that.  Remember a farmer needs some wealth in old age, not residual loan payments that consume his retirement income. 

All farm lenders play by the same rules, most are ethical and moral, and all are human.   Many lenders, when emotionally petitioned by family farmers wanting to keep their dairy cows, are willing to lend against increasing land values, knowing that the livestock enterprise is obsolete and has little chance of economic survival or revival on its own. 

I have had one of the best lenders in North America since age 17 when my mom had to co-sign my notes.  All ag lenders want their farm customers to prosper, make money, borrow more and make more.

But more than that they want all their money back, with interest.

It's entirely possible for a farm real estate note, inflated with foolish livestock lending and borrowing over time, to debit a farmer's social security income into old age then tap into any life insurance. 

That might be an honourable, romantic image from the gallery.  But up close it's the unfortunate result of bad life financial decisions based on wants and dreams, not good accounting and rational thought.