While on vacation, I realized that digital photography has not only impaled Kodak stock, but also changed the way people look at the world.

Amateur photography, back in the days of smiling women with beehive hairdos and cat-eye glasses implied some sort of economic decision. Is this picture worth burning up Fuji Film and a flashcube?

But with high-quality smart phone photography costing essentially nothing, the decision becomes whether to snap one or two dozen images of the pigeons eating spilled French fries at the Eiffel Tower. People view the world as countless glimpses through a tiny screen, missing the big picture.

So what about the current paparazzi-worthy status of agriculture? Can't you see it? Seven-dollar corn and $10,000 Corn Belt land. Lawrence Welk couldn't make more bubbles!

SEEING THE FOREST FOR THE TREES

Why am I certain we're bubbling? Because we're attracting speculators at an alarming rate to our otherwise mundane business of producing food. The grain trade is constantly getting strong-armed by speculative commodity investment funds. People who don't even know what a soybean looks like want to own farmland.

What concerns me more is that herd mentality tends to keep anyone from seeing a bubble until it pops. Remember the Texas oil boom when everybody wanted to be J.R. Ewing? And dot.com stocks were never going to crash. Neither was urban residential real estate. Pick up a Florida newspaper and you're not going to see many advertisements for home equity loans! Sooner or later, every party ends.

Then I think about my family farm. Enterprises seem to work for 20-year stretches before they dwindle. Coming out of the Great Depression through the late 1950s, grandpa made a "latte" money milking cows. Through the 1960s and 1970s, dad fed cattle to burn up cheap corn, and beef was what paid for dinner.

Throughout the 1980s and 1990s, hogs were declared the "mortgage lifters." Funny, it didn't seem that way on Christmas Eve 1998. As I was delivering eight-cent hogs, I realized that it wasn't just the pigs that were getting leaner.

A PERFECT STORM

If the 20-year cycle really works, perhaps we have a few more years of lavish grain farming before the white-knuckle rollercoaster ride down. But perhaps as important as when things will descend is how fast and high grain farming has climbed. It feels like a physics lesson waiting to happen.

Since the millennium, it's been an unprecedented string of "white buffalo" events in favor of the grain farmer -- a chain of events that's warping us into thinking we are smart, not lucky.

GMO technology made weeds and bugs a non-factor. Interest rates disappeared and borrowing costs became subliminal. Auto steer and machine automation drove everybody to being bigger, better and less wasteful farmers. Crop insurance got reinvented and nobody fears production risk like they used too. The Third World got up for breakfast and decided it wanted sausage, not cereal. Biofuels decided they would top off their tanks with all the grain traditional buyers didn't use. Asia, Australia, Europe and North America have been playing "drought musical chairs." And last but not least, we have "beans in the teens," among other high-priced grains.

So in an environment where suppliers compete to let you pay for your seed, fertilizer and herbicide after harvest, new equipment can be had for your signature, every land deal looks like a bargain a year later, and every forward contract you sign ends up amongst your worst grain sales of the year, I find myself asking Dirty Harry's question about sticking my neck out any further at this phase of the cycle. "Do you feel lucky?"

BEGINNING OF THE END

In one indication ag's run may have reached its summit, DTN's Marcia Taylor unearthed a very likely spoiler: credit belt-tightening. As she reported in a recent Minding Ag's Business blog, lenders have their comfort zone and some of the fastest-growing farmers fit in it like a square peg in a round hole -- especially farmers raising rents to new heights.

Despite post-1980s lip service that it's always been about cash flow, it's never hurt a borrower to own a section or two of mortgage-free land. Some of the operators that concern financiers the most are a new breed of cat heavily dependent on operating credit. They use asset-light models. Like the tech companies that crashed, they see growth as a priority over profit margins. They are driving land price increases not by their own purchases, but by offering the returns required by speculative buyers of farmland.

Even more alarming, some of these aggressive operators have significant off-balance-sheet risks, like heavy fixed obligations for cash rent or equipment, backstopped exclusively by nouveaux futures and options strategies plus crop insurance to mitigate risks. They function outside of the traditional matrix that relies on high-equity borrowers with unencumbered farmland or knee-deep working capital to let bankers sleep easy at night.

So will these risk management strategies work? Well, they are supposed to, but they have not been tested. Ag lenders are still aching from what excessive optimism, overcapacity and sharply higher costs did to the strongest and best dairy and pork producers. And if the spigot of credit closes to a drip, where does that leave things? With inflated land, input and machinery costs that upset the apple cart for even the most conservative farmers?

FAMOUS LAST WORDS

I can't say if we are at the ultimate top, but at some point we are so far over the trend line that regression back to the average is inevitable. I never saw all the changes coming, and I'm sure I won't see the top until we're already on the way down. Like the great philosopher Forrest Gump once quoted his mother, "Life is like a box of chocolates. You never know what you're gonna get." I think Forrest's words might just help us all.

Editor's Note: Real Midwest farmer Adam Erwin is a former international banker who writes under a pseudonym. He farms more than 10,000 acres of corn and soybeans in several states.

(MZTAG)

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