Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Tuesday 04/22/14

Not 1979 All Over Again
Crop insurance has been a huge buffer to protect against another 1980s debt crisis, analysts say.[Read Full Blog Post]
Posted at 3:11PM CDT 04/22/14 by Marcia Zarley Taylor | Post a Comment
Comments (9)
Big government just keeps on creating disasters. In the 80's big government was on an insane ag credit extension binge. Now big government has embarked on an insane crop insurance guarantees binge marked be spending billions targeting those with the most wealth the largest income guarantees. These insane guarantees have produced a disastrous bumper crop of skyrocketing land costs with minimal margins of per acre profitability as well as driving many smaller farmers out of business. We can depend on the liberals to continually grow the national debt, flush billions down big government rat holes, and raise the costs of growing food or procuring health care.
Posted by T Kuster at 7:17AM CDT 04/24/14
Koenig points out that you repay debts with cash flow (i.e. income) and not with assets. This is exactly the truth, but when others say we are fine because we have such good D/A numbers, there lies THE fallacy. That number only means something when the asset is sold. I don't know how many times I have had to tell farmers that equity does not repay debt. Profit does. It isn't a hard concept. The numbers to look at are working capital to gross revenue, and the Debt coverage ratio. Those 2 are better measures of farm profitability. If you take out the inflated real estate prices of just the past 5 years, what kind of D/A ratio do you get? If the land on my balance sheet that I paid $1000/A for in the 90's is now worth $8000, but I still owe $400/A on it what does that tell me. In completely simplistic terms, my D/A ratio went from 40% to 5% but my payments didn't change. For this reason, I think we are ignoring the facts that the farm economy is much more unstable than economists think. Sure I have plenty of equity to refinance losses, but I sustained those losses because I did not make money. Adding to my debt by restructuring is a short term bandaid. I need to generate more income (net income preferrably) to service that debt. Crop insurance helps limit my downside, but how much? Do I have 20% operating profit margin on my operation so that when I have a crop failure I can repay all my input costs, make all my payments, and have money to live on? I think the real answer is no for the majority of the operations out there. If they don't have working capital, they have to refinance and you just dig yourself a little bit deeper in the hole.
Posted by Pedro Sanchez at 9:04AM CDT 04/24/14
Reasonable margins of profitability are the result of farmers prudently and carefully budgeting for agronomic and financial risks rather that government assuming risks agronomic and financial. When government assumes all risks financial and agronomic margins of profitability disappear as aggressive farmers quickly and habitually bid land and other production costs higher when they spend the guarantees big government throws at those operations.
Posted by T Kuster at 9:56AM CDT 04/26/14
Republicans have actually supported the subisides more than the liberals. If you were paying attention to the farm bill debate, democrats in the senate wanted to limit the amount of crop insurance farmers could receive based on income, but the Republicans were against that and got rid of that bill in the house. I do agree with some of your statements in regards to the guarantees from the last couples years that have lead to some spikes in prices such as land. However, if farmers have another crop year like last year or better, the margins are very tight and possbily negative even with crop insurance. (Getting back to how it's been for the majority of most farmers lives)
Posted by Ryan E at 10:20PM CDT 04/26/14
Too many republicans aka rinos aka liberals.
Posted by T Kuster at 9:12PM CDT 04/27/14
Farm loan repayment is always based on cash flow and profit. But bankers also look at balance sheets taking fail safe asset repayment possibilities and their values into consideration. Today we enjoy more diversity of markets for corn and soybeans we grow, but we lack diversity of products because so many of us these days grow just that...only corn and soybeans. And yield could not be expected to make up the difference if prices for what we grow were to fall because if it did, prices would likely fall further. In that case cash land rent would need to adjust lower. With that so too should land prices. It wouldn't be interest rates that would place borrowers under stress even if prime rates were to triple. It would be nervous lenders who saw equity levels plunge as land values were forced to a new accounting. That is why renewable fuels are crucial to maintaining market diversity and cash flows. Concerns about the environment and climate are lynchpins of biofuel policy. Remove those concerns and all government support of renewable fuel is reduced to nothing more than a hasty vote by an urban-controlled Congress.
Posted by Richard Oswald at 7:44AM CDT 04/28/14
Ethanol mandates are just another big government disaster. See http://thehill.com/blogs/congress-blog/energy-a-environment/328423-renewable-fuel-standard-mandate-is-a-failed-policy and see http://www.forbes.com/sites/williampentland/2013/12/06/bye-bye-biofuels-why-u-s-renewable-fuels-standard-failed/ and see http://www.heritage.org/research/reports/2013/06/the-ethanol-mandate-dont-mend-it-end-it and see http://www.businessweek.com/articles/2014-01-06/u-dot-s-dot-ethanol-mandate-would-be-eliminated-if-bipartisan-legislation-passes
Posted by T Kuster at 6:57AM CDT 04/30/14
Crop insurance and the new billions for millionaires farm bill have been a huge buffer by big government to protect and stack the deck in favor of those who mathematically have the greatest wealth and income. That smaller farmers are discriminated against by these schemes is irrelevant to those who insist the durability of mindless government farm programs are more important than those smaller farmers financially harmed by this big government largess.
Posted by T Kuster at 7:51AM CDT 05/01/14
A few thoughts from a farmer. Why should the public treasury subsidize insurance for farmers and not widget makers? This is why. All wealth comes from the earth. That simply means we must extract, catch or grow the material and energy (commodities) we need. Without this first step nothing else is possible. We can I think, agree on that? It is very much in the interest of the nation to encourage risk taking to originate wealth. Original or new energy or material is then used, processed, refined, traded, there by generating margins (a living) for most, ideally all. I would argue The United States is a wealthy country in large part because we have a great deal of land and we have a society and system of government that has encouraged the origination of wealth. Agriculture is an activity that if successful produces original wealth (grain) and perhaps a margin. You are subsidizing the attempt to produce original wealth not guaranteeing a margin. They are entirely separate yet easily confused. Making widgets dose not produce original wealth nor does writing software or driving a truck or building a road they only support or make more efficient the origination of wealth. Iâ?™m sure these thoughts are not original but they are correct lol. Some part of our lives depend on the widgets and software and services but ALL peoples lives depend completely on the production of food. For this reason it makes sense to have as many people trying to farm as possible. If the number of farms dwindles to a few, then all will be dependant on a few for the necessity of life, food. Subsidizing the insurance of farmers is a small price to pay to insure production in as many hands and areas as possible. I do think the subsidy should not be a guarantee of a margin and it should be phased out as the size of an operation grows If an individual is ambitious and aggressive and wants to farm the whole township I have no problem with that, but they should have to take that risk on their own beyond a certain point. One more thing. Grain is unique among commodities because it is not existing. That means the production or existence of grain is assumed. Oil and copper and coal are in the ground and we just need to extract them. Where is next yearâ?™s grain crop? If the environment dose not allow the production of grain no power on earth could do anything about it. There simply would be none. Grain can be efficiently stored maybe we should think about doing more of that? Regards
Posted by Steven Wegner at 9:43PM CDT 06/14/14
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