Week 19 Letter from a Farmer

I received an e-mail this week with a link to an interview Charlie Rose had with Warren Buffet. I was struck by the following comments: “In my adult lifetime I don't think I've ever seen people as fearful, economically, as they are now; the economy is going to be getting worse for a while. … The credit freeze is sucking blood from the U.S. economy,” which later in the interview was followed by: “You want to be greedy when others are fearful. You want to be fearful when others are greedy. It's that simple.”

Without any value judgment of his statements, I already see some evidence of this on a small scale around us. While I know of one commodity farmer who can’t pay his monthly bills anymore, others are lining up to pick up his real estate – they know that this is a buyer's market. Land prices have fallen to levels of about six years ago; they have adjusted, as we all knew that these prices could not hold up. At one point, the farmer was offered over $3 million for his property. We will be happy for him if he gets half of that today, which would be enough to pay off his mortgage.

I talked with other farmers who have direct relationships with their customers. I don’t see any fear. I see optimism that finally our products will be met with more appreciation. The days of lavish dinners at fancy restaurants might be over, and eaters think that the local, high-quality vegetables, milk, and meat we produce are the next best thing to offer a better quality of life.

We will be presenting you with a new share price soon. We know we will have to go up in price and we will try our best to minimize any share price increases, but we can’t work harder for less money. It will be extremely difficult in a time like this to make any projections on whether our expenses will go up or down. We have heard from many of you that your support of the farm comes from a deeper commitment than solely purchasing produce. But at the same time we feel bad that we need to ask you for more support, especially when some of our produce this year did not meet our standards. While we had some great crops, the lettuce and tomatoes took a hard hit in both quantity and quality from the severe weather we endured. There will be a slight share price increase, but we also assure you that we will cut any unnecessary expenses. The trouble will be to find any, as we pride ourselves on running a pretty lean and efficient enterprise already.

One place where we are going to attempt to save on unnecessary expenses may at first glance seem upside down. We are looking for a new tractor to replace our largest Case tractor that does most of our primary tillage. This year alone we spent over $6,000 on repairs on this tractor alone. A year ago we shopped around for a new tractor and I was surprised by the unwillingness of the dealers to negotiate the asking price. They were telling us that as soon as the tractors were rolling off the assembly line they were shipped directly to a farm. Corn and soybean farmers were rolling in cash due to the ethanol and biodiesel bubble. That bubble has burst too; the expansion of ethanol plants is capped and corn prices are down. Suddenly farmers became fearful and stopped ordering equipment and new tractors. While this winter was not a good time to purchase a new tractor, these days excess inventory has caused prices to tumble and they are accompanied by offers of zero percent financing. I am reminded of Warren Buffet's words: Is it time for us to be greedy and make the move to trade in our 20-year-old Case IH 5140?

When Warren Buffet bought GE stock he said: “I did not spend any money; I invested it.” When we buy equipment, we think similarly; a reliable tractor allows us to get the work done at the right moment and does not unexpectedly impact our budget by presenting us with large repair bills. Equipment acquisitions are not truly part of the share price; we set a portion of the total share price aside for capital improvements that allow the farm to increase efficiency and to better control its long-term future. With the erratic weather pattern, it is becoming more important to have reliable equipment. Some of the down time of the Case tractor this year delayed planting, which resulted in missed succession plantings, causing smaller shares. So, if you do see a brand-new, shiny tractor on the farm next year, remember we will not (as Warren Buffet said) have spent any money; rather, we will have invested in our future. It is one of those demonstrations that we are in this for the long haul. Yeah, maybe it is that simple.
~Jean-Paul