About 10 years ago I visited Monette Farms and I was intrigued by their aggressive business model. But now that a lot of their debt has to be refinanced at much higher interest rates, their creditors are knocking at the door. I can’t help but think that they’re not alone.
…company founder Darrel Monette put land up for sale to generate cash. His largest creditor, a syndicate of lenders led by Scotiabank, worked with him time and again to try to keep the Saskatchewan-based farm afloat.
It didn’t work.
Monette didn’t sell enough land, and the syndicate loan, originally $950 million with $830 million outstanding, came due April 15. Monette owes about $905 million in secured debt, and the nearly 500,000-acre operation faces massive restructuring if it hopes to survive.
But it’s an interest rate problem — not a borrowing problem.
Right?
Margin problem. There’s no profit in growing food.
You can’t keep up when the interest rates change, because you were basically breaking even at the lower rate.
This is pretty bad. The only way to expand is to borrow, and there’s not enough profit in the operation to pay the interest? That means everybody stops doing it, because there’s no money in it.
When all the farmers stop farming, what comes next?
Prices go up because of lack of supply, then people get back into the game. Not easy but I imagine that’s the way it’s always worked.
“Prices go up because of lack of supply, then people get back into the game…”
…but not in Canada, because supply management says you gotta buy quota, and if you add that to all the other costs, knowing that the cost of quota only ever goes up because its a tax, smart people will not risk their money. Remember, you can’t even make a buck growing weed in this country.
Because nobody -has- to be a farmer, right? Invest MILLIONS and millions in an ag-biz and work yourself to the bone? Or just put it in bonds and clip coupons for a living?
Food is going to get -expensive-.
Shitty management. Your sandbox has to pay for itself and your Tonka toys.
I would say that with the best management available and generations of experience, most farmers growing on their own paid-off land are getting by, not getting paid.
If you’re buying land to farm, do you really think that growing food on it and selling it can possibly pay off that bank loan? Ain’t no management in the world going to make that pay.
As my late father said, the syndicates will take over the farms.
Operational Return on Assets on farm assets is about 2%. So bank debt shouldn’t be more than about 1/3 of assets. Capital appreciation on farmland is maybe another 3%. But, it is only realized when the farm is sold and is subject to income taxes.
Monette hired managers for each of his farms and said he preferred to hire younger people who would make the farms their careers.
Monette said his expansion was based on a core vision to feed one billion people for a day through sustainable agriculture.
Those comments pretty well explain the FAILure. I’m reminded of my summer working on. 6,000 acre hay ranch in Klamath Falls OR one summer. The two bothers and cousin who owned the farm were descended from generations of Farmers in Atascadero CA … and had agribusiness degrees from Cal Poly. Yes, they’re all multimillionaires now. Hard-working and SMART.
But there was a neighboring ranch which was just bought by some city slicker who thought he’d “get back to the land and set his soul free” … yeah Woodstock was still reverberating in 1974. Well, everything this novice did was WRONG and his place was a mess. But there worst part was that his successful neighbors offered to help him in every way … but he ignored them and rejected their advice. I believe they eventually bought his property.
Stupidity is not ‘sustainable’
Yes stupidity is not sustainable. Yet it continues and cannot be fixed. Just look at the Canadian voters who insist Canada is cuba north.
My father always made money farming. I suspect in the long run he made around minimum wage. Early on he worked out every winter and my mom fed the cows. He had financial flexibility. 90% of groceries came out of the garden or from a stray moose and they milked a half dozen cows to pay day to day bills. They rarely had debt. They sold 50 calves a year and bought a new piece of equipment every year.
If you load yourself up with debt and employ hired labour, you are okay until the shit hits the fan. Then there is no way out.
“If you load yourself up with debt and employ hired labour, you are okay until the shit hits the fan. Then there is no way out.”
Business 101. The course most failing farms skipped or forgot.
When I was thirteen fourteen I worked for my best friend’s father they had beef and pigs . He was German and had quite a bit of land and four or five hired hands. My best friend always scoffed and laughed at our buddies dairy farm and how it wasn’t up to snuff.
I can still remember the security car sitting at the main farm entrance when my best friends father went broke.
Don’t get me wrong his dad came and talked to us in public school about being a kid in Germany during the war. And I can still remember my parents being away one weekend and me sleeping in and having to call him that I did, and how he was kind to me .
But he spent more time in coffeeshops then the farm if you want to be rich money is on your mind 24/7 and that’s the way it is.
One would be wise to remember every dog has his day good or bad.
Life is bittersweet.
the world is healing.
Maybe all of Monette’s soon to be unemployed man child managers will be able to displace some of the jeets in the trucking industry when they start looking on Saskjobs for work.
You were wondering Dennis if others may be feeling the heat so to speak. Well I am one of them that has been affected by a multitude of issues, falling commodity values into the last quarter of 25, ever increasing costs into 26, fertilizer values jumping 30 percent higher on the middle eastern unrest, higher interest, could go on and on.
Yes, we could have done things differently in the past to be better prepared for this and we will address them this year.
We are no where near as deep as Monette but can totally relate.
I graduated in a small town with 23 graduates in 1984 and would say about 21 of them came from the farm and I am the only one still at it. This is why Monette got to 500 thousand acres and do not know what the future holds when like this farms collapse.
One farm to the west of us, approx 40 thousand acres was rented to Monette and could not continue, heard it may be sold to someone coming out of southern Alberta.
Drove by another farmer today as he was just trying his harrows and could smell the freshy opened soil after its winter slumber, it is the essence of life to me, that is why I am here !
Well, they say farming is a harrowing experience! They say a lot of things like that. That’s why they get horsewhipped so frequently.