Three states, five dairy handles and a rate decision: how borrowing looks when the collateral has hooves
Interest Rates, With Hooves
Every few weeks, a committee in Threadneedle Street decides how much the rest of us will suffer, and London holds its breath like a dog watching a sausage. The Bank of England’s own pages at bankofengland.co.uk explain the process with great calm. I have always found that the more calm the language, the more expensive the news.
Meanwhile, in a land of wide skies and wider overdrafts, the same story plays out with livestock. A rancher does not worry about the mortgage rate. A rancher worries about the rate, the rain, the price of hay and the question of whether the cows have been reading the financial pages. This week I decided to compare the two systems, and I have come back convinced the cows are better informed.
Borrowing Where the Collateral Moos
A London homeowner offers a bank four walls and a damp patch. A rancher offers a bank some land, a herd and a handshake. Three addresses in this field tell the story neatly. There is Texas rancher loans, Oklahoma rancher loans and Colorado rancher loans. I assume the Colorado one is the highest. Everything about it says altitude.
What strikes a London reader is the sheer ordinariness of it all. Nobody blushes at the word loan. In Britain we say mortgage and look at our shoes. In ranch country they say loan, tip their hat and carry on feeding the calves.
The difference is that a rancher can look out of the window and see what the bank owns. A London homeowner looks out of the window and sees what the bank is considering.
Where the Money Is Counted
If you want the plain facts about how farm finance works, farm money is a handy starting point. It covers the stuff that never makes the evening news: cash flow, operating costs, the cheerful business of a harvest arriving after the bill. A farm spends all year in the red and one week in the black, and the week is subject to weather.
It is the opposite of the City bonus cycle, where the money turns up in March and the weather is irrelevant. Farmers would never accept a model in which the year’s earnings depend on the mood of one department.
The Dairy Branch
Texas also has dairy, and dairy has money problems of its own. A set of dairy-themed addresses reads like a high street full of financial shops. There is Texas dairy loans, Texas dairy trade and Texas dairy win, the last being a name no bank manager has ever said out loud with a straight face. If a loan officer says win, you are already losing.
The world of dairy finance is a matter of tight margins, thin cheques and thirsty customers. The price of milk can drop in a week and take a year to climb back. At farm.FM they note that a dairy farm’s electricity costs soared and the milking parlor applied for its own power plant. In London, we call that a response to the energy price cap, and we deliver it in a spreadsheet.
Funding Announcements and the Distance to the Front Door
Governments are generous with figures. Last week Westminster was busy promising that homeless veterans would be housed by Christmas, with millions put behind the effort. The London Prat took a close look at the gap between the funding announcement and the front door, and found a working group.
It is a pattern the farm world knows well. A grant is announced in March, a form is published in June, a decision arrives in October and the money turns up in time to pay for the repairs to the roof it was meant to prevent. A rancher at least can hold the bank accountable. He knows where the bank keeps its cattle.
Regulators, Rules and Reading the Small Print
Whatever the borrowing, the sensible advice is the same. Read everything, ask twice, and never sign at a table with a free biscuit on it. The Financial Conduct Authority publishes useful material for UK borrowers at fca.org.uk, and its guidance is far more helpful than anything I could add. American borrowers have their own rules, but the biscuit principle is global.
The farm desk at farm.FM puts the idea more bluntly with the headline ranch owners are millionaires on paper and broke by supper. I would put it on the wall of every estate agent in North London. It describes my street.
Five Observations on Rates and Ranches
- A rate rise is the only weather forecast that always comes true.
- If the collateral has four legs, at least it can leave when things go wrong.
- A millionaire on paper is just a person who owns a lot of paper.
- Every bank calls the customer a partner. Partners usually get a say in the terms.
- A farmer can survive a drought. An overdraft is slightly more serious.
The Rate at Which Hay Becomes Money
Both worlds, in the end, run on trust and a nervous glance at the sky. One has a committee. The other has a sunrise. For more of the comparison, keep an eye on Bohiney, The London Prat and farm.FM, which treat every interest rate as a punchline waiting for its audience.
If your own finances need cheering up, Newsthump is free.
SOURCE: https://bohiney.com/