Coping with double-digit interest rates through the eyes of 1980s ranchers

Taylor went on to say, “Surviving high interest rates really boils down to a basic tenet of Economics 101: you need to make more money than you spend. Farmers are an optimistic bunch who tends to overestimate their income and underestimate their expenses.

When I asked Taylor how today’s ranchers could learn from the hardships of the 1980s, he replied, “In the 1980s we lost a lot of good people, a lot of really good people, but there were mainly three reasons why farmers/herders went bankrupt: 1) They couldn’t adjust their operating costs, 2) They couldn’t live within their means, 3) They couldn’t repay the debt they they had contracted.”

The next perspective I’m going to share comes from my market mentor, Ken Betschart, who currently markets cattle for Consolidated Beef Producers in Torrington, Wyoming, but ran a 50,000 head feedlot in Kansas in the 1980s. Asked about having endured the days of double-digit interest rates, Betschart said: “You have to be prepared for your operating costs to increase significantly. That may not seem like a big deal to you. interest rates go from 3% to 6%, but if you have an operating note of $250,000, at 3% your interest costs are $7,500, but at 6% it’s is $15,000, which is double what you were paying before, and that’s by comparing 3% to 6% You can do the math on what happens when the interest goes from 16% to 17%, god we on balance, we’ll see 18% again.”

Betschart also shared that during tough economic times, you need to get creative with different financing options: “If you’re ready to work, can keep a job, and build a good reputation for yourself, there are people who As long as you’re not a subprime lender, some investors would rather charge you 5% interest on a note than the 4% they currently earn on CDs, and if interest rates in city ​​are higher than 10%, 11% or 12%, it’s a good deal.”

Finally, I’d like to share with you the wisdom of my grandparents, Everett and Karen Hoines, who also lived through the 1980s on a shoestring budget (and hopes and prayers) because they had field notes to to do and four small children to feed. . When asked about the 1980s, my grandfather said, “It was a fucking nightmare, and people today just don’t realize how hard it really was. We were lucky because we had both cattle and sheep, and at the time we couldn’t get an operating loan because the bank was also in trouble. With the diversification of sheep, we were able to sell wool and market lambs several times throughout the year, which helped generate cash.

When asked what they had done to persevere through these troubled times, he replied: “I don’t remember exactly what year it was, but it was when the interest was at its peak, and your grandmother and I went to buy some cows. The banker wanted to impose a variable interest rate on us, but we couldn’t bear it. I presented the idea to the banker that if I got $1 a pound for my calves, I would pay him 10% interest, but if I got 90 cents a pound for my calves, I would pay him 9% interest, and if I got 80 cents a pound for my calves, well, I’d pay him 8% interest — there it was, he But there was no way I could afford to pay 8% interest if my calves were only fetching 40 cents a pound.

So I asked my grandmother, who said, “It was my job to devalue our way of life. I raised a huge garden, canned everything I could, and even sewed a lot of clothes for the children. hay, I hayed. When it came time to work the cows, I worked the cows, and when we had sheep to lamb, I was in the barn, helping do the work.

While their own individual experiences were all a bit different, they all shared the same talking points: don’t go into more debt than you can survive; live within your means and expect your operating expenses to increase. I’m not sharing this with you to downplay your aspirations for the coming year, but to warn you of an obstacle that may be looming. There is no doubt about it, higher interest rates will create a stressed bottom line. But just as they did – with due diligence, a sharp pencil, and the will to fight – so can we.

ShayLe Stewart can be reached at [email protected]

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Livestock producers are eager for supply and demand mechanics to evolve, but the market is not completely free of hurdles as bearish concerns about the U.S. and global economies loom. Hear DTN Livestock analyst ShayLe Stewart’s thoughts on the cattle market in 2023 at the all-virtual DTN Ag Summit on December 12-13. Full details available at www.dtn.com/agsummit

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