Non-judgmental curious question: why do you keep doing it? (As opposed to selling the land and buying tbills.)
I had a coworker once who lives in this region and owns some amount of farmland in a similar situation. He could have sold it and moved his family to <insert modest paradise here, in his case Florida> at any point; even now I think it would be easily done, if not as easy as in the past. But of course he still lives there, immiserating himself to keep the farm barely viable and working a second job to provide a livable salary.
Why? Because selling it would offend his dead father’s pride.
You have tons of businesses that are viable (produce enough money to support a family) as long as you never load it with debt; because they do NOT produce enough to support a family and the debt load that would come from buying it.
So they're unsaleable.
I've been thinking about this situation as "the bakery trap". The labor dimension here is that the best possible career move for the person you've spent the past n years training is to immediately leave once they've mastered your hot-cross bun recipe.
Jokes on them because it's even less of a business now.
Eventually I met the father, and he was big into the farm life. running a small but industrial farm. I still didn't understand, he mentioned a love of feeding people, why is he doing this and why is he putting his family through this, my girlfriend was translating the things he said but I didn't get it, so I assumed language barrier. They did seem to be respected in the town though by all the shopkeepers. But given the options, they were quite liquid and wealthy, it seemed contrived.
Then I met the grandfather, now, I liked that guy. The grandfather had a diversified portfolio, golf ranges, restaurants, farms, different siblings and children running them all. There was no "I just love feeding people" bullshit, just revenue streams and property. The farmer son just got the short straw and had to adopt that persona.
Deluding yourself into believing in what you do is easier than getting up every morning knowing it's bullshit.
Certain areas of government, debt collection companies, insurance industry, there are literally high rises full of people who live that existence every single day.
they might if you count opportunity cost (ok not $5M but you get my point)
Also non-judgmental curious question: what is this "ick" related to non-farming businesses?
I don't know how to exactly describe it, but I'd suggest it has to do with more autonomy in non-farming businesses, where you are always trying to balance between trying to make the business work and not taking advantage of people. Or if you end up taking advantage of people...
In farming, it is all laid out for you. Prices are already set in Chicago. The buyer is always there. You grow the product, deliver it, and that's that. These days, with the way technology has gone, you might not even interact with another person in the process.
What about all the non-organic farming, use of pesticides/antibiotics/etc., poor treatment of animals (sometimes), water waste in some cases (like almonds in CA), being beholden to & inevitably supporting the wonderful companies that are John Deere and Monsanto, having to use proprietary seeds and IP for such a basic human need, etc.? Some of our largest problems on the planet trace back to modern industrial farming.
To be clear, I love and respect farmers a ton, my comment isn't about them at all. They're amazing and hardworking and anybody in the the business would be dealing with the same problems. I'm just talking about the purity of the business itself that you're talking about. The idea that the job is somehow so morally pure compared to all the other jobs baffles me. Your average local job (waiter, cashier, postal delivery worker, janitor, etc.) would seem to have a much more direct positive and impact on people's happiness and much less of an opportunity to take advantage of other beings, as you put it.
That is all much the same as the prices being set in Chicago: Someone else has made the decision. While someone else no doubt feels the "ick", I am but the customer who is being taken advantage of. (Well, except in the case of Monsanto — they closed up shop years ago)
> Your average local job (waiter...
It seems you, deep down, even understand that. Comparing farming to being a waiter as opposed to the restaurant owner, I feel, is a pretty good portrayal of the difference and it is telling that you chose that point of comparison. Technically farming is like owning the restaurant, but in practice, because everything is laid out for you and decisions are made elsewhere, it feels more like being the waiter. You are layers removed from the "ick".
There’s a certain satisfaction there that most people don’t get out of their ‘cog somewhere in the middle of a machine’ jobs.
To be blunt: I don't buy this... at all. Farmers have (in theory, and to some extent in practice) choice in (a) what they grow, (b) whether to grow organic/GMO/etc., (c) what pesticides/fertilizers/etc. they use and how much, (d) how they treat any animals they have, (e) whom they sell to... I could go on. Of course competition and supply and demand constrain what they can do, but that's true for most if not all business owners, including restaurant owners.
Waiters are not* like this... at all. They have -- by definition of their jobs -- zero control over the dishes, the recipe, the cooking, what is ordered, whom to serve, etc.
Therefore the idea that "technically" the farmer is like the restaurant owner but "in practice" like the waiter therefore makes no sense to me. They are (extremely) more similar to the restaurant owner in basically every dimension, not just "theoretically".
Depending on one's values though I'd see something similar in some modern conventional farming where the land is being degraded, but there's still the righteousness that you are feeding people so it's justified.
There are ways to farm and some other kinds of businesses too that are win win for everyone involved. They're generally not the most short term profitable. Or even in-one-lifetime profitable.
I therefore wondered if it refers to this, a disease of corn...or if it was just a coincidental use of the word.
https://www.nature.com/articles/srep43818.pdf?error=cookies_...
When you buy land to develop, you have to pony up cash for it. I have never heard of a lender lending without a cash flow producing asset as collateral.
https://www.farmcreditil.com/Products/farm-loans
There's even government grants and loans to help:
https://www.fsa.usda.gov/resources/farm-loan-programs/farm-o...
Edit - we're on HN. If you'd ever tried to get a business loan you'd know it's near impossible for a new business without 100% collateral, which is why the entire venture capital business, and HN, even exists...
>Farm Ownership Loans offer up to 100 percent financing and are a valuable resource to help farmers and ranchers purchase or enlarge family farms, improve and expand current operations, increase agricultural productivity, and assist with land tenure to save farmland for future generations.
What is "assist with land tenure to save farmland for future generations"? Is that speculating for future price increase?
Banks will let you finance any land if you have a way to pay for it. They'll let you mortgage some plot of land in the middle of nowhere if you have the income to pay for it.
A farm is income. A future farm is a business plan. But if you want to speculate on land from the city and work an office job, yeah, they'll give you a loan for that too.
> What is "assist with land tenure to save farmland for future generations"? Is that speculating for future price increase?
Pretty much yeah.
Doesn't seem accurate. See:
Land not occupied by some money making asset also being financed or used as collateral in the deal cannot be financed at rates that are not the lending equivalent of a "we really don't want this job so we're bidding high".
Since you're an expert link poster why don't you cherry pick us all up some of those underwriting guidelines you cite?
I look forward to learning about ag specific loan products.
Guidelines are openly available at Fannie Mae, Freddie Mac, and USDA websites (unless there are specific overlays a bank is using, which is typically proprietary).
I love government subsidies through implicit and explicit loan guarantees. It’s the reason a 30 year mortgage exists. It’s the reason one can default on an FHA mortgage with almost no consequences (while being almost impossible to default on student loan debt).
To your point this is “subsidized by the rest of us,” the bottom 50% of American earners only pay 2.3% of total federal income tax collected, with the top 50% paying the rest. The poor folks are not on the hook for subsidies when they come out of general federal gov revenue (FHA loans charge an upfront and monthly mortgage insurance premium, and there are similar costs for USDA and VA loans but lesser so; we can consider those costs “cost recovery” for the purpose of evaluating self funded vs subsidies via transfer from the general fund).
https://taxfoundation.org/data/all/federal/latest-federal-in...
Like student loans?
>It’s the reason a 30 year mortgage exists.
Which is a large part of the reason houses cost what they do.
>the bottom 50% of American earners only pay 2.3% of total federal income tax collected,
"Well the poors aren't paying for it, you are" isn't the endorsement you think it is. And the poors still get kicked in the dick by spending driven inflation same as the rest of us anyway.
I have no experience with farmland, but for other purposes such as building hotels/retail/etc, you can't just get a loan for the land, you buy the land with cash and then get a construction loan to start development. I assumed you would have to at least need to have a plan to operate a farm to get a loan.
https://www.fsa.usda.gov/resources/farm-loan-programs/farm-o...
100% financing government backed:
> Farm Ownership Loans offer up to 100 percent financing and are a valuable resource to help farmers and ranchers purchase or enlarge family farms, improve and expand current operations, increase agricultural productivity, and assist with land tenure to save farmland for future generations. With a maximum loan amount of $600,000 ($300,150 for Beginning Farmer Down Payment), all FSA Direct Farm Ownership Loans are financed and serviced by the Agency through local Farm Loan Officers and Farm Loan Managers. The funding comes from Congressional appropriations as part of the USDA budget.
As long as your intent was in good faith at time of origination, you’ve met the burden.
Yeah, this is the pertinent detail. The whole point is putting down only a fraction of the amount.
When you calculate the rate of return on a financed property, the rate of return is versus the capital you put down, not the value of what you financed. Plus accruing equity in the property is part of the return.
If you put down $1.25 million and you get a $5 million property paid off after 20 years, that's double the rate of return on your bonds.
But opportunity cost is a thing. No land equals no farm and no opportunity for that return.
If not farming, what kind of job can the would-be farmer get and how would they accrue enough capital for their return on T-bills + income to equal their farming income paying off the land? Also my calculations didn't consider that the land value would rise, which it almost assuredly would.
What really happens is as you pay off equity on your land and equipment, you leverage that into buying more land and more equipment.
Successful restaurateurs buy more restaurants, successful tech startups hire more devs and buy more servers, successful farmers buy more land.
Actual (successful) business activity yields more than investments, which is why they reinvest in themselves over stock markets.
Let me tell you about farming... this isn't true.