Are you looking for a way to strike it rich?
Consider opening a Lamborghini dealership in the Midwest.
This advice came from investment guru Jim Rogers in late 2014, who also suggested that entering the farming industry could be a lucrative venture. According to Rogers, even novice farmers can reap significant rewards.
“Invest in land and take up farming… fortunes are to be made in agriculture, and when the industry flourishes, even those who are merely adequate can prosper, as conditions will favor everyone,” he stated.
“If your goal is to amass wealth, that may be your best bet. Alternatively, you could purchase land and lease it to an efficient farmer.”
“There are plenty of avenues for making money in agriculture. For instance, consider opening a chain of restaurants in agricultural regions, as farmers are expected to perform significantly better in the next three decades compared to the previous ones. Or establish retail shops. The Lamborghini dealership in the Midwest is just one of many possibilities.”
So, have farmers become wealthy since Rogers made this proclamation? Have Lamborghini dealerships in the Midwest thrived?
Not quite.
What about the future? Will we witness a boom in agricultural wealth? Will farmers and Midwest Lamborghini dealers find success?
Was Rogers’ advice incorrect, or simply premature?
Only time will reveal the answer.
Currently, a great deal of uncertainty looms, which could cause agricultural prices to soar—though it may not benefit Midwestern farmers.
Diminishing Returns
The latest report from the Bureau of Labor Statistics reveals that consumer prices, as indicated by the consumer price index (CPI), rose by 0.6 percent in January. However, the food index climbed even higher, increasing by 0.9 percent.
The most notable increase was seen in cereals and bakery products, which jumped by 1.8 percent over the month. Dairy products followed closely at 1.1 percent, while fruit and vegetable prices rose by 0.9 percent.
Yet for farmers, these price hikes fall far short of compensating for their escalating input costs. The price of phosphate and nitrogen-based fertilizers, for instance, has surged by 80 to 200 percent. At these rates, profit margins are slim—certainly not enough to consider purchasing a new Lamborghini.
Bill Taylor, who operates 2,500 acres of corn and soybeans in central Missouri, recently articulated the difficulties posed by soaring fertilizer prices:
“All prices are rising; it’s outrageous. Farmers like me are contemplating reducing fertilizer application or delaying purchases in hopes of lower prices. This will inevitably lead to decreased profits, or even losses.”
“We still have much to calculate. If we don’t harvest a good crop, what happens to all these excess inputs? This will be especially tough on the younger farmers and those already facing challenges.”
The use of fertilizers, much like caffeine or credit, soon reaches a point of diminishing returns, where additional applications yield progressively smaller increases in output.
When the rapid rise in fertilizer costs surpasses the prices of corn and soybeans, the focus shifts from maximizing crop yields to minimizing input expenses. Coupled with government-induced supply chain disruptions and labor shortages, this creates a perfect storm for further food price hikes.
How to Reconcile Numbers that Don’t Pencil Out
Reconciling numbers that simply don’t add up is a challenging task. Some rising input costs can be passed on to consumers, while others may have to be absorbed through reduced profit margins.
However, there are natural limits to how much costs can be passed along or absorbed. When expenses—such as those for fertilizer and labor—inflate the overall production cost above market prices, it becomes counterproductive to continue operations. As production ceases and supply diminishes, consumer prices inevitably rise.
Farmers’ challenges exemplify the broader impact of severe government policies that devalue currency. Increased prices, or shrinking purchasing power, lead to peculiar and painful economic distortions. Inflation in fertilizer and labor costs, along with the resulting dissonance in agricultural pricing, drives farmland supply shortages.
It’s not just food, either. Prices for used cars, gasoline, computer chips—everything is on the rise.
At the heart of this issue lies the Federal Reserve’s expansive money supply policies, combined with Washington’s unchecked money printing, which have led to this precarious economic juncture. The incessant rise in consumer prices is a pervasive issue affecting all sectors.
The strain that rising prices impose on savers and wage earners is profound, functioning much like a hefty tax that drains already stretched family budgets. In this evolving state of stagflation, personal income growth has not kept pace with the surging consumer costs.
Throughout the economy, the numbers simply don’t add up. For the first time in over four decades, the Federal Reserve lacks the ability to reconcile these figures through interest rate cuts and artificially inflated money supply.
In essence, the point of diminishing returns has been reached, where extending credit no longer fuels economic growth but rather drives up consumer prices.
The Federal Reserve faces a daunting challenge, as interest rates remain near zero while the CPI sits at 7.5 percent. A hike of 50 or 100 basis points will scarcely make a dent.
This may prompt a recession without effectively controlling consumer price inflation, thereby exacerbating stagflation.
Realistically, it will require far more than a few interest rate increases for the economic figures to reconcile. If luck is on our side, perhaps a decade or two of economic adjustment will provide a solution.
[Editor’s note: Recently, Charlie Munger drew an interesting comparison, likening cryptocurrencies to venereal disease. He humorously pointed out that once you reach 98 years old, you can afford to speak your mind. Munger also remarked that inflation contributes to the downfall of democracies. Given the ongoing wave of inflation affecting the U.S. economy, it is wise for investors to consider strategies for wealth protection and preservation. For insights into this topic, explore the Geometric Wealth Building Program. Simple actions can lead to significant outcomes.]
Sincerely,
MN Gordon
for Economic Prism
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