The Wisdom of Listening to Old Farm Stories - By Dr. David Kohl

By Dr. David Kohl

What are the benefits of aging? You get to connect time spans across generations—decades, sometimes centuries. Growing up on a dairy farm in upstate New York, I'd listen to my parents and grandparents tell stories about operating a farm during the Great Depression. My youthful immaturity often led me to tune them out—technology and new farming methods seemed to overpower their common sense.

Now, 25 years into this century, I hear similar stories about the farm crisis of the 1980s. and the youth today want to impatiently move on from hearing about these times, just like I did.

The question I constantly receive from all levels of agriculture is: "Are we headed for an era similar to the 1980s, or worse yet, a 1930s Great Depression economic environment?" As someone who has spanned two centuries, I'll examine where we've been in the rearview mirror to understand agriculture's current state and provide a glimpse of the future. More importantly, I'll share nuggets of wisdom and actions that stand the test of time.

Similar Signposts: The 50-Year Cycle

If one examines a crisis or potential for concern, the cycle is approximately 50 years. Economic cycles, whether in agriculture or the general economy, often mimic the seasons of a year. A Russian economist named Kondratieff documented this phenomenon after studying global economies over the centuries. His K-waves show alternating cycles of economic growth and decline - a result of human behavior linked to investment, debt, and consumption trends, often driven by technological breakthroughs.

The spring or growth cycle brings exuberance, representing growth and business expansion in the economy. Summer is where the business cycle and individual businesses peak. This is followed by fall or autumn where businesses mature, then winter where failure increases at an accelerated rate, triggered by changes in policy, consumers, or society.

The 1930s and 1980s: Eerily Similar Patterns

• Trade barriers: The 1930s and 1980s have very similar attributes. Global markets became constrained by tariffs and trade restrictions, creating supply and demand imbalances that suppressed prices. The Smoot-Hawley Tariff Act in June 1930 increased tariffs to 22 percent and built upon similar tariffs of the 1920s. In the 1970s, specific trade restrictions were placed on certain commodities after the Russian Wheat Deal and the "full steam ahead" direction by government and agricultural leadership.
• Credit squeeze: Credit became very restrictive in both periods as regulators placed pressure on lending institutions to carefully scrutinize credit. In both eras, a financial liquidity crunch occurred after a period of generous credit to farms and ranches. For example, debt outstanding to agriculture tripled in the decade of the 1970s.
• Leveraged buyouts: In both cycles, new producers were buying out previous generations, creating a business cycle of highly leveraged individuals—particularly on the top half of the balance sheet such as operating money—coupled with a rapid rise of interest rates, especially in the 1970s.

Fast Forward to Today

The current state of agriculture has some similarities, but also distinct differences. A marker that needs close watching is global trade tariffs, as one in five dollars of net farm income results from export markets. This will be more geographic and commodity specific, possibly creating 1930s and 1980s type scenarios in specific areas. We must closely observe the negative goodwill that has resulted from tariff implementation on trading partners and other countries.

Watch closely as trade and tariff wars spill over into a capital war where the U.S. is very vulnerable with the size of our deficit and federal debt. This could impact the long-term cost of money as federal debt instruments mature, with 30 percent being financed by both trading partners and allies. Deglobalization and de-dollarization would be unintended consequences where agriculture becomes the point of the spear.

What’s Different This Time?

Are the economic environment, producers’ mindsets, and the tools available today different than they were in the other crisis eras?  Several factors distinguish today’s agricultural environment:

• Scale has exploded. Agriculture has consolidated rapidly, putting more zeros and commas on financial statements. When adversity hits, the impact is magnified across the industry.
• Better tools exist. We have more risk management and marketing programs to weather downturns and capture profit opportunities.
• Debt ratios look strong—on paper. Average debt-to-asset ratios appear healthy, but often that's due to inflated land values and more debt-free operations from aging demographics.
• Watch the real indicators. Loan defaults and farm bankruptcies are a trojan horse marker often used by regulators and lenders. These are actually lagging indicators—you don't see them until up to two years after problems start. The real marker to watch? Refinancing due to operating losses, poor management, and lifestyle decisions. Remember, financial liquidity issues led to asset value declines in both the 1930s and 1980s when land supply exceeded demand.
• Policy changes loom. Keep an eye on the next Farm Bill and potential tax changes. What will crop and livestock insurance levels look like? How about government disaster payments and program delivery during financial stress? Estate tax laws could be game-changers as the senior generation ages out without next-generation successors.
• The bottom line: Larger commodity-based agriculture operations will be at the mercy of dollar values and export markets, facing intense competition from the Global South.  Diversified, value-added operations, midsize, and smaller farms will depend on local markets and broader economic conditions.

Timeless Principles That Never Fail

What wisdom stands the test of time, regardless of farm size, enterprise, or location? 

1. Focus your time and energy on what you can control, and manage around what you can't.
2. Master your finances. Maintain sound, transparent financials with emphasis on cash flow budgets. Monitor projections against actual results so you can make quick adjustments.
3. Plan with purpose. Develop a comprehensive operational plan that covers production, marketing, risk management, and human resources. The plan should be designed to generate positive cash flows and profits. Put it in writing, execute it, and monitor it with a management mindset.
4. Build your team. Surround yourself with a formidable team of advisors—your lender, crop and livestock consultants, farm management consultant, and peers who add perspective and hold you accountable.
5. Don't forget yourself. Protect your physical, mental, and spiritual health. Embrace the positive little things in life. Avoid "energy vampires" who drain your energy and dampen your attitude, especially those who feed off negativity during dark moments.

The Path Forward

Yes, we're seeing markers and signposts similar to major downturns of the past, both in agriculture and the broader economy. But here's the silver lining: adversity creates opportunity. The key is using available tools with a management mindset, balancing short-term and long-term approaches in both business and lifestyle.

Those old stories our elders told? They weren't just ancient history—they were roadmaps for navigating what's ahead.