[libraryofbabel]

> Farming is a terrible business. My few hundred acres (maybe worth $5M) will only churn out a few hundred grand in profit -- not even better than holding t-bills.

Non-judgmental curious question: why do you keep doing it? (As opposed to selling the land and buying tbills.)

[jckahn]

I imagine there's some satisfaction in feeding people that money can't buy.

[TimorousBestie]

There’s an exceedingly strong cultural drive to keep farmland “in the family” even if it impoverishes or otherwise inconveniences the descendants.

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.

[yieldcrv]

I used to date a woman in Germany who was trying to shake her farm roots for corporate aspirations. I didn't understand German that well but apparently other Germans could tell her accent. No different than someone from Appalachia being assumed to be uneducated, and how we debate the validity of poor English versus "dialect". It seemed like an unnecessary distraction to her life.

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.

[potato3732842]

>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.

[libraryofbabel]

Yeah, that rings true. I assumed when asking my question that this was something to do with culture, identity, and social status within a particular community. In this case the culture (rural America) is alien to me. But I can understand the idea of making economically "irrational" choices for reasons to do with pride or culture or identity, though in the world I grew up in it's more things like become a classical musician, environmental scientist, or spend 6 years doing a humanities PhD. On the other hand, none of those things involve the allocation of $5M of capital, so there does seem to be something different about this kind of life choice.

[insane_dreamer]

> none of those things involve the allocation of $5M of capital,

they might if you count opportunity cost (ok not $5M but you get my point)

[bombcar]

There's opportunities for the right person out there, I've seen it a few times - young man (or woman) who wants to run a farm or rural business or whatnot, either marries into the family or becomes "basically adopted" and inherits the business or farm.

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.

[gopher_space]

> 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.

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.

[bombcar]

"The E-Myth" books talk about this (which is the worst name ever because the E is Entrepreneur not E as in email or emachines lol) - many small businesses are NOT small businesses, they're a job you own, and you can't sell a job.

[prawn]

First accountant I met with a year or so after a friend and I started our business 25+ years ago said: you guys don't have a business, you have a paid hobby.

Jokes on them because it's even less of a business now.

[threatofrain]

I know someone in a similar position. Had a spirit more meant for tech, pursued it, but has to keep thinking about what to do about the family farm business. I think it's the same for any kind of family business, there's a sense of failure if you're the generation to close it down.

[0_____0]

Maybe a nit, but In Illinois it's unlikely that what's being farmed goes into people's mouths generally. Corn (not your sweet corn, but field corn) and soy mostly go into other industries e.g. biofuels, animal feed, chemical industrial inputs etc.

[appreciatorBus]

> the ick that comes with running other businesses

Also non-judgmental curious question: what is this "ick" related to non-farming businesses?

[9rx]

I own both a farm business and non-farm business. I feel the "ick" he talks about.

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.

[dataflow]

> 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...

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.

[9rx]

> What about...

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".

[dataflow]

> 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".

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".

[ethbr1]

To the whataboutism, at the end of the day a farmer has a physical product they can look at, and they know the land it came from.

There’s a certain satisfaction there that most people don’t get out of their ‘cog somewhere in the middle of a machine’ jobs.

[9rx]

Both my farm and non-farm businesses have a physical product, though. In fact, in both cases the product is food, as it happens. I expect the farm business is less "icky" because it is entirely dehumanized. You don't set the price, you don't have to win over customers, and increasingly with more and more automation you don't even interact with the customer at all. There is no "Poor service. 0 stars." or "Too expensive! Scam." to contend with.

[lithocarpus]

Many if not most businesses involve lots of ethical decisions where you have to choose between taking advantage of people or making less money.

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.

[lithocarpus]

I should clarify that I mean directly financially profitable. Obviously growing good food even if you lose money at it means people including your family and friends get to eat good food which has other benefits than cash.

[arbor_day]

There’s something righteous in farming where it’s really hard to feel like you’re doing wrong even if you’re getting rich — you are just feeding people. It’s like being a doctor.

[skeezyboy]

its why farmers are always such jolly folk

[jjtheblunt]

I'm from Illinois at the edge of farmland, which rotates corn and soy.

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_...

[fundad]

I think it's the way the original poster looks down people running other businesses.

[dismalaf]

Land can be financed over long periods and held forever. So a few hundred grand will pay off $5 million in about 20 years and then that's steady income forever after (as long as you keep farming).

[jldugger]

Okay, but as mentioned, 5 million also buys 20 year treasuries that yield 4.90%, or about 245k a year. I probably wouldn't buy them on margin tho.

[dismalaf]

> I probably wouldn't buy them on margin tho.

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.

[skeezyboy]

You say you only calculate rate of return on the "capital you put down"...Im not following here, do you think because youre spending profit from the farming operation that loan for the farm is paying for itself? The tbills pay for themself.... you have to work the farm for 20 years to pay back that 5 million. Its an apples and oranges comparison there.

[dismalaf]

You're right, it's not an apples to apples comparison, just like running any business will yield more than straight investments.

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.

[skeezyboy]

he could spend 90% on tbills, 10% on a small farm, and then each year take the 2.5% the tbills generate and buy more farm fields, working the farm as it grows, or something like that, a mix of finance and farming

[jldugger]

I mean, you _can_ buy 20 year bonds on margin. Reg T just limits you to 50% in most (all?) cases. And it doesn't buy you a job or a demand mountain of insurance contracts!

[smeeger]

thank you

[elzbardico]

After The inevitable collapse good luck eating worthless T-bills! Ehehe

[beambot]

> that's steady income forever after

Let me tell you about farming... this isn't true.

[dismalaf]

Hah fair. Year to year is crazy but long term it smooths out.

[lotsofpulp]

Land can’t be financed, businesses can be financed. Businesses that own land are much more easily financed, with the lowest interest rates.

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.

[dismalaf]

You've got it backwards. Hard assets like land, buildings (aka. your house), machinery (a tractor or your car) are all much easier to finance than businesses. A simple Google search gives a wealth of resources for someone looking to finance (aka. mortgage) land and/or property for a farm.

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...

[lotsofpulp]

My point is those hard assets have to be used for a business, not for price speculation (as far as I know). Your second link says:

>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?

[dismalaf]

> My point is those hard assets have to be used for a business, not for price speculation (as far as I know). Your second link says:

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.

[rob]

> Land can’t be financed

Doesn't seem accurate. See:

https://agamerica.com/land-loans/real-estate-loans/

https://www.farmcrediteast.com/en/FINANCING/Land-Loans

[toomuchtodo]

This is factually inaccurate. The land is the collateral. If you don’t service the debt, they take back the land. 75-85% loan to value, 2-4% interest over treasury rates. Underwriting guidelines for the loan will differ if this is for speculation, development into housing, or agriculture.

[potato3732842]

You're being pedantic.

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".

[toomuchtodo]

This is simply not true based on the interest rates and underwriting guidelines, and I own raw ag land that has been financed with nothing else besides a down payment and the land as collateral. Words mean things my dude. These are not hard money rates, these are credit products specifically for land with no business, cash flow, or other income stream at time of transfer. Being ignorant or unsophisticated is a choice.

[potato3732842]

"Ag" is the keyword there and I suspect it roughtly translates to "somehow tax subsidized by the rest of us". Go try and get a loan on residential/industrial or otherwise non-ag land and get back to me. Everyone looks (i.e. does their due diligence) and nobody ever goes for it because the rates or terms are always laughable.

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.