Lessons from the 1980s: Working Capital, Part 1

Today, every news show mentions the dreaded, impending “recession” — depending on one's definition of recession. There may be a recession, however, looking back, the ag economy in the 1980s was a depression. 

How those of us who survived that depressive, devilish, deadly decade (I learned alliteration at Murray State) with our dealerships intact is still a mystery. It took two hands to turn the key in the door every morning as it was a daily nightmare that awaited. Bankruptcies, falling land prices, past due accounts receivables, past due machinery accounts, floorplan curtailments, dumping new and used equipment at huge losses, pressure from the manufacturers to order new equipment to keep the factories running (thus exasperating the problem), grain prices below production costs. And the trigger was an American President who made a foot soldier of the American farmer via a grain embargo to Russia. 

Oh, and I forgot repossessions (that we stood recourse on) that flooded the used market and our lots. The repos were worth on average about half what the payoff was. Farm estate sales were a weekly occurrence. 

Then, the rural banks started to fail or exit the ag lending market and the Production Credit Associations (PCAs) foreclosed on past due farmers with positive net worth while at the same time unfairly extending upside-down producers. Sometimes there were two foreclosures or quitting auctions happening per week. 

Our floor plan interest hit 20%-plus. Farm programs tried to limit production by having farmers cut acreage by 10%, farmers took the worst land out of production and STILL produced more grain that further flooded the markets.

Read the full article on the Rural Lifestyle Dealer website here.