#162 Two Perspectives
SW Financial Literacy
Two Perspectives
Is it speculation or good business?
"Pretend you are buying a house, and your monthly mortgage is $2000.
$2000 feels tight in 2026 but by 2036 that number isn’t going to feel nearly as high because your wages should have increased and inflation has happened all around you. By 2036 you may be even looking to upgrade homes again because you can afford higher payments.
The same thing happens when you’re buying farm ground. The payment stays the same for 20 to 30 years. However, you are yielding more, have become more efficient in the operation, or are selling at higher commodity prices.
Year one the property may not cash flow, but hopefully by year 10 it is making you good money."
Last week, I made the post above on Twitter. Here is the response it received back from a very popular Gavin Spoor (@gavin_spoor):
"All the older successful farmers at the coffee shop who say “it was tough but buying that farm was the best thing I ever did” remind me of this diagram.
You only hear from the ones who made it. You don’t hear from the one who committed suicide in the barn after he couldn’t make a payment. Or the one who added so much stress to his life his marriage crumbled. Or the one who not only lost the newly purchased farm, but also dad’s original quarter.
Planning on future inflation, and more “good times ahead” is nothing but pure speculation.
Farmland prices have nothing to do with the lands actual production value. It’s all propped up by crop insurance, speculation, ethanol, etc. I think at some point this bubble pops. The board needs a reset."
It was a very interesting take from Gavin who I have a ton of respect for. I'll be honest, I struggled to fully get behind his post. What made me think a little bit harder about the above comments was the amount of support his post received.
(P.S. I don't fully comprehend what the airplane picture means.)
My initial reaction was that I had a glass half full perspective and want to learn from the winners while Gavin was glass half empty while highlighting those who it didn't work out for very well.
Casey Kimbrell's (@CBKimbrell) follow-up post highlighted exactly what I was feeling:
"Everything is speculation beyond what you can hedge. If you’re going to be in agriculture and weren’t handed a pot full of cash, you’re running a high risk business. You’re correct in saying that ownership advice is survivor bias, but advice from the successful is the best advice you can ask for. A hopeless attitude will guarantee you’re correct in predicting failure, but I’ll certainly acknowledge that a positive attitude will only lead you to a chance, not a guarantee."
But Gavin isn't a glass half empty guy. I had to acknowledge that he made some great points:
We do need to be wary of speculation, both with land purchases and commodity marketing.
We do need to remember that hard times can be on the way and not forget the lesson of those who failed before us.
We all know ag is being propped up through crop insurance, speculation, ethanol, etc. Which puts much of our success outside of our own control.
In the end I decided that we had two perspectives on the same topic and were not in disagreement with one another. I fully back my original post and completely agree with Casey while also acknowledging that Gavid made a great contribution to the discussion by creating awareness and some healthy skepticism.
That's all that I have this week, it was a conversation worth pondering and sharing with you. Be sure to follow Gavin and Casey on X.com if you aren't already!
Have a great week!
Grant
