Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Wednesday 12/12/12

Preventing Big Farm Failures
Average cash rents approaching $400/acre and sub-par yields can spell disaster even with high insurance coverage. That's why lenders are raising the caution flags for those who rent most of their acres.[Read Full Blog Post]
Posted at 6:22AM CST 12/12/12 by Marcia Zarley Taylor | Post a Comment
Comments (23)
Perhaps congress is being highly irresponsible by granting a few high rollers annual million dollar insurance subsidies in addition to multimillion investment/profit guarantees. It is truly pathetic the many beginning and smaller farmers being denied opportunities to farm by congress recklessly targeting the greediest and largest with the most insurance benefits.
Posted by Lon Truly at 7:24AM CST 12/12/12
The Government's shameless pandering to Corporate Giants has made being a Small Farmer(Read: Family-Owned/Rural Small Business)very difficult at best. Worse yet, it's set the entire industry up for a monstrous epic fail. I've been "preaching" this message to Area Chambers and Business Groups for years-generally to deaf ears. In Small towns, it's tempting to keep one or two major concerns running able to employ 1/2 or more of the resident population. Larger Businesses/Industrial Farms have distinct advantages are Chambers and Cooperatives should be availing to it's smallest and newest. So far, it hasn't happened. As predicted, as Business, and now Farming, has become "Super-Sized", it's set itself for a Super-Sized Implosion. If you have thousands of small businesses/farms and even 25% of them wither downsize or fail, you have a bumpy economy, but one a bit easier to steer back on track. If you have a mere handful of HUGE Businesses/Farms imploding, you have a disaster. I wonder when anyone will listen to this and act...not likely in my lifetime.
Posted by Ric Ohge at 9:36AM CST 12/12/12
All topics of discussion. One might want to include that too many land owners will sell out their current renter(small or large) for a few bucks. Then get into a car and drive a hundred miles to a mega-mall(financed with a government subsidized gimmic) in order to save a nickel on a roll of toilet paper. Consquently selling out the local retailer. All then reference this waste as a healthy gross domestic product. Maybe we are all just greedy.
Posted by Bonnie Dukowitz at 6:17AM CST 12/13/12
Interesting that most of the "leading" young farmers profiled in yesterday's Progressive Farmer were of the juggernaut class. Suppose they are the ones of most interest to the advertisers.
Posted by Campbell Ian at 9:48AM CST 12/13/12
This is a small thing---but I really dislike the term "greedy" when referring to larger operators. Those people farming 1000 acres were the "greedy ones" back in the 50s and 60s. Now we are all righteous? Those larger operators are definitely risk-takers and love a challenge and love to roll big---but that does not necessarily make them greedy. Just a different business model. In our area, most full-time operators are into about 2500 acres. A 1970 mega-farm.
Posted by Brent Heid at 2:54PM CST 12/13/12
Brent, The term "greedy" was not referencing anyone or any group. The reference is ALL.
Posted by Bonnie Dukowitz at 3:31PM CST 12/13/12
The term greedy is directed at everyone pandering and lobbying for continuation of government programs that target those with the greatest probability of the greatest profits with the most government subsidies and the largest government investment /profit guarantees. Greedy is not keeping what you have rightfully earned. Greedy is using government to grab what other people have rightfully earned.
Posted by Lon Truly at 5:52PM CST 12/13/12
Sorry Lon, Greedy is covetous. The use of the word is general.Legal is legal. You can certainly direct an opinion to where ever you like. My use of the terminology was directed at everyone.I do not know anyone who told a purchaser, You are paying me too much! It is healthy for all of us to assess, with-out bias and pointing a finger at others , our own attitudes and personality once in a while. For what it is worth, we are small farmers and purchase some crop insurance. Can't get an input loan without it.
Posted by Bonnie Dukowitz at 6:56AM CST 12/14/12
with the price of corn or soybean and all the goverment new bills it will be difficult to manufactured in USA any meat protein at agood price.
Posted by Joe Smith at 10:46AM CST 12/14/12
Every industry needs to attract ambitious, goal oriented operators who are willing to take risks. Let's face it, the Michael Jordans make the rest of the team better athletes. But what I think financial analysts point out is that high velocity growth and high cash rents make high fliers more vulnerable to crashes when prices or yields dive. Play out some of those worst case scenarios and then plug the gaps with better marketing. There's alot of red ink the government doesn't protect, even with crop insurance.
Posted by MARCIA TAYLOR at 3:46PM CST 12/14/12
I think that I understand the "greedy" definition. It just seems to a fine line between greedy and financially astute with some people. Having an entitlement culture is another thing altogether. I truly believe that many rich, white farmers have more of an entitlement mentality than the urban poor black folks on assistance. Case in point ethanol subsidies, direct payments,etc. Just mentioning letting the MARKET determine the price of ethanol and you hear corn growers squealing like greedy pigs about their entitlements. If that is what you meant, Bonnie, by greedy, then Amen.
Posted by Brent Heid at 6:19PM CST 12/15/12
Let's cover a couple of facts here. First, the market does currently determine the price of corn based ethanol. There are no subsidies or import tarriffs left. Yes, the RFS is still in place, but given the perfect opportunity to waive it, most economists and the feds said the market impact would be a couple % price drop. Big deal. The market moves that far on its own on a daily basis. If you don't agree with the economics in my case, why can we export ethanol at a profit, without subsidy - so much to the point that the EU has to consider a tariff on US ethanol imports to stay price competitive. Second, mostly directed to Lon, your arguments and anger are way off base on crop insurance. The premium subsidy percentage for the SAME revenue assurance schedule of insurance is the SAME regardless if you farm 5 acres or 50,000. Also doesn't matter what agency you work with. The program structure is the same. The only choices you have are coverage percentage (60-85), trend yield (Y/N), harvest price (Y/N), etc. Everyone has the same choices to make. There is no volume discount available - period. Does a 50,000 acre farmer get a bigger $ based subsidy? Absolutely, but the % is the same, and I guess I'd love to hear your argument why it shouldn't be. Third, if you're naive enough to think crop insurance guarantee's a profit, shame on you. Spend a little more time on your numbers. If someone bought their land 15 years ago, it's that currently discounted land cost that's guaranteeing them a profit, not crop insurance in itself. If you genuinely think that anyone in any business can offload their risk to someone else, and be guaranteed a profit year in and year out, come on.
Posted by Unknown at 9:07AM CST 12/17/12
If fci does not unload risk from farmer to taxpayer, why do we have it? I never said anything about fci guaranteeing profitability forever to all farmers did I? I said "with current government insurance schemes and current prices". Any idiot knows just about everyone that can is farming the government crop insurance guarantees available to farmers and than that has a whole lot to do with the ever increasing costs of production. If RFS has no effect on anything, lets get rid of it. If ethanol was such a wonder fuel why doesn't readily available ethanol fuel ethanol plants as well as all universities? Your red herring regarding insurance premium subsidy percentages is totally irrelevant since it completely ignores the total value of insurance benefit available to different farmers. Previous stated arguments have been made why targeting massive insurance benefits to a select group of individuals is insane. Read above. You are dishonest if you cannot admit that fci is not guaranteeing profits to individuals with minimal land costs. If your statement was true individuals without land costs would have no reason to purchase fci. The problem is not just that larger farmers receive a larger insurance subsidies but also that many larger farmers are receiving massive investment/profit guarantees.
Posted by Lon Truly at 10:24AM CST 12/17/12
The clueless and or corrupt congress ever fixated on re-election has chosen to be oblivious to the economic carnage it is creating with the unfair and inequitable crop insurance schemes. It should be obvious to everyone that targeting the largest and most profitable farm businesses with the largest investment and income guarantees grants these operations with an overwhelmingly competitive edge in a highly competitive business. It should be noted that many of these operations have little or no land costs and that government has no business guaranteeing ever increasing land values with insurance schemes that cover land costs. It should also be obvious that smaller farm operations targeted with no or minimal government benefits have little or no chance of competing in such an economic environment. Considering the stratospheric levels to which land values have escalated it should be obvious to all that extreme government income and investment guarantees are capitalized into land values and that government has no business targeting the wealthiest with multi million dollar business benefits.
Posted by Lon Truly at 10:44AM CST 12/17/12
Lon, I guess since larger operators don't have much land cost to worry about, there's little stopping you from getting in the game with them. Step right up to the craps table and place your bet if you think it's so great. I'm still failing to see your "targeting" argument. I don't recall too many policies that indicate unbalanced support in favor of "larger" farmers. Direct payment limits come to mind. Still haven't seen your case for "unfair" crop insurance. If you buy the 85% policy, you paid a healthy premium for that coverage. A premium in most years is money spent with no claim paid. This all comes down to choices that everyone has to make. How "good" of insurance do I want to buy? By the way, if you choose to buy 85% coverage, your taxpayer funded subsidy is nill. If I bought a 70% revenue assurance policy (a balanced farmer/taxpayer cost) and filed a claim, didn't I miss out on 30% of my potential revenue. Did you give up 30% of your take home pay? Oh wait, maybe you only bought 60% coverage while your neighbor bought 85%. He gets a check, you don't. Hence the anger. Still comes down to choices that get made and not government intervention. I get that you're not a fan of taxpayer subsidized crop insurance, but how many acres would be in production without a reasonable cost insurance program? None of the fringe areas, simply because of weather. Yet, it was these fringe areas that keep this year's production at a reasonable level. In the big picture of national food prices, was this not a worthwile investment from a taxpayer point of view?
Posted by Unknown at 12:24PM CST 12/17/12
Unk. - Many large operators have minimal land costs. Most large operators have major land costs. Hope you can comprehend. Government has no business guaranteeing returns to land whether they are major or minor. Obviously government has not the ability to fund present spending levels with tax revenues. Not all small farmers favor fci. The same view is also shared by some large operators. I guess you do not realize the degree of my success in farming USDA programs including fci. Try jumping to conclusions less often. Do you really think government can afford to and should be subsidizing the production of all crops in all marginal areas? Perhaps the consumers should be required to pay more for food in times of lessor production rather than the taxpayer paying billions through government insurance schemes.
Posted by Lon Truly at 1:38PM CST 12/17/12
One has to wonder about the validity of fci claims from operators who farm in many counties and have the equipment to move grain long distances. I hear from adjusters who suggest that the potential fraudulent claims are a huge problem. I suspect that there are many claims in that $190,000 per entity range this year.
Posted by Unknown at 2:08PM CST 12/18/12
Lon, Could you please describe or define , smaller farmers, larger farmers, high rollers, marginal areas, etc. Please be specific. As we farm over 500 acres in lighter soils and sell some corn to an ethanol plant, are we large or small farmers? Is New Orleans and New York marginal because of floods and Iowa, Illinois and Indiana marginal because of drought? How many bushels per acre, proven yield, does one need to not be sub-par? We are behind on crop insurance, premium versus claims, where does that place us on your scale? For what it is worth, to me, crop insurance is the closest thing to sensible as far as government involvement in anything, there is. I agree, government itself is an issue, but untill you put down numbers supporting your critique, your argument is sub-marginal.
Posted by Bonnie Dukowitz at 5:37PM CST 12/18/12
Bonnie- Granted there are many factors including changes in technology, but before the government got involved in saving the family farm business this country had zillions of farmers from coast to coast. Now we have government bureaucrats being paid millions if not billions, 16 trillion in debt, government targeting the largest farms with billions in investment/profit guarantees, some farmers receiving million dollar plus annual insurance subsidies, and extremely narrow margins of profitability due to government assumption of production and marketing risks driving land prices skyward. You can rest assured that collectively many farmers are billions of dollars ahead ahead with indemnities versus premiums. Check out http://www.gao.gov/assets/590/589305.pdf
Posted by Lon Truly at 7:12PM CST 12/18/12
I agree with much of your analysis Lon. However, one needs to take a deeper look. Insurance subsidies are not paid to farmers of any size. The insurance companies which are mostly owned by the banking industry are the entity being guaranteed a profit. The worlds money does not differ large or small, nor does the money care, as long as profit, control and power is the result. As long as food producers are fighting among themselves, those in control can sit on their throne and watch the game.
Posted by Bonnie Dukowitz at 7:03AM CST 12/19/12
Bonnie - In regards to large or small farmers make you sure that you read pages 23-24 of the gao report. Higher land prices negatively affect small farmers because of unbalanced distribution of government subsidies. Why you like having to work harder for less profit potential is beyond me.
Posted by Lon Truly at 7:04AM CST 12/19/12
Bonnie - it works the same way with farmers being guaranteed a profit or receiving the largest investment guarantees by fci. Most of those with the largest insurance subsidies and the largest investment/profit guarantees are in the drivers seat.
Posted by Lon Truly at 7:20AM CST 12/19/12
See http://www.aberdeennews.com/news/aan-column-congressional-proposal-just-insane-20121215,0,3938965.story
Posted by Lon Truly at 6:47PM CST 12/19/12
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