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Veteran Advisor

Big uncertainties

Doubling of farmland values in short order, doubling of corn values, Oil going up, rents going up, fertilizer, fuel, ....healthcare in disarray, uncertain climate for tax hikes....really, has anyone known a time quite like this? I am too young to have known what the 70's were like, but they must have been trying times, too. Should you try to save a few bucks, or is inflation going to whittle away the earning power of those dollars so you look foolish? Go for the 85% cadillac crop insurance policy and hope you collect three or four times the premium? Book fertilizer now before it doubles in price, if you can even get it?

 

What happens when the almost 90 yr old Saudi King dies? Does the USA spread its military forces over yet one more arab nation that doesn't want us there, and where we cannot afford to be? Do we hoard supplies of diesel anticipating shortages? Oh, right, the new mandated biodiesel won't keep.     On and on.....Doesn't it seem that our whole system is coming unhinged? Was this the type of hope and change that people were looking for?

 

and these are good times for crop farming. Just think of what it is like to not have a job, to face foreclosure of your house, uncertain future of your pension plan. No health insurance coverage. Sorry for the morning rant, have a great day.

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10 Replies
Advisor

Re: Big uncertainties

Red, you are singing to the choir here.  I graduated high school in 1972, and was away from the farm in college for a couple of years after that.  Mike and I started farming in 1975...actually bought equipment for the 1976 crop year when his Daddy was disabled late in '75.  I cannot remember all that much about that long ago...I guess it went okay, since we are still hanging in there. 

I've recently mentioned to young friends my memories of sitting in gas lines on alternate days, due to shortages.  They could not imagine not being able to pull up to the pump and fill up anytime they have enough money to do so.  "Shortage" is not in their vocabulary, unless it is a shortage of money...and, until they ruin their credit, that isn't a real problem, either.  The consequences can be delayed. 

Someone mentioned wanting a return to Nixon-era price freezes on here a while back...and I made it clear that they understood it was a WAGE and price freeze, so the average guy did not gain any ground.  The tactic has been assessed historically as a total failure economically.

That just goes to show that there is no easy fix.  Yes, we are very vulnerable, mostly because the consequences are delayed until they accumulate to such a tremendous degree.  We have delayed dealing with Social Security solvency, Medicare/Medicaid funding, renewable energy, which is teh key point in sustainable agriculture, and just about every other important aspect of a truly advanced society. 

Shall we start in on the crisis of education (and I am not talking about a teacher's union and its benefits)? CEOs who have sucked the wealth out of company after company, and left retirees with bankrupt pensions?  Everyone with half a brain saw the subprime and even the mortgage crises coming.  Commercial properties are another shoe waiting to drop. 

There is so much whining about the average consumer having to pay an extra four or five bucks a week extra at the gas pump...but,  they will sleep on the sidewalk for a day or two to pay a hundred times that much for iPad 2, because the iPad 1 they bought six months ago is now a hunk of junk. 

Cotton is up over 400%, and people will have to pay more for socks and sheets now, too.  The guys around us are "picking in tall cotton," as the old saying goes.  For their sake - and ours - I hope it lasts.  It could really rejuvenate this broke-behind county. 

You tell me...should we be worried? 

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Honored Advisor

Re: Big uncertainties

Hey Red, let`s look at some of the things that are certain.  One political party tried to cut $100 billion out of a $1.5 trillion deficit and the other party*  frothed at the mouth and threw furniture around.  Fact: people are far from being ready to balancing the budget and unless there would be a tremendous paradigm shift within the next year, it`ll be too late if not already, no one wants the give up the teat. The fallacy of growing and taxing our way out of the problem is now very evident. There is 3 times the national debt and way less economic growth as in the 90`s when raiding the social security lockbox gave a phoney budget "surplus".  A government that can create it`s own currency with never go broke, they will meet their obligations with cheaper dollars. I`m not telling anyone how to invest, but with those undisputed facts it should be obvious where not to put someone`s money. With middle-class peasants around the world storming the palaces for fear of food prices.  Leaders in countries like China have to be concerned. For one`s own farm I think one has to say "no" on alot of the nickel and dime expenses like high priced starter fert, fungicides, nitrogen stabilizers, 8-stack seed ect. I know it works great for some but do your homework, 2 out of 5 years positive results don`t cut it. I haven`t sold grain ahead at this point, the crop insurance "put" at 80-85% gives us a Legen-Dairy opportunity to insure a profit and leave the top wide open for whatever monopoly money they are paying in the fall.  Times have always been uncertain and scary, if one can not be too greedy these can be the best of times. Good Luck.      

*  denotes no political parties, to protect the guilty  Smiley Happy  

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Senior Advisor

Re: Big uncertainties

One party has the objective to starve government into compliance by pushing tax cuts for the last 30 years. Then you try to correct the revenue shortfall by cutting programs that the opposition favors.

 

A grownup would do the opposite. They would keep revenues high until  the spending was cut below the revenues. And it would be reasonable to cut the programs that are feeding the deficits. SS has a surplus. Medicare has a surplus until now.

 

Your choice to balance the budget are to attack entitlement benefits that have funding surpluses or nearly so rather than attack the deficit causing spending. Most egregious are tax cuts that are not affordable. Not just lower rate but tax cutting initatives like those given to farmers to depreciate a $250 K  combine in one year.

Certainly a combine is a depreciating item but as the depreciation occurs, not before.

 

Most businesses have that option but government budget requires that people that make money pay taxes. We cannot afford to give them a $100 K tax avoidance in one year. Especially with out current budget shortfall.

 

 Please remember that seniors are not responsible for the budget shortfall. They did not bilk the financial system or lay people off and put them out of work. They are not  foreclosing on mortgages or in any way causing of the recession/depression.

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Honored Advisor

Re: Big uncertainties

Hey Don, to put the budget in perspective. US income is $2.162 trillion   http://en.wikipedia.org/wiki/File:U.S._Federal_Receipts_-_FY_2007.png

US spending is $3.456 trillion  http://en.wikipedia.org/wiki/File:U.S._Federal_Spending_-_FY_2007.png

and the national debt is $1.4 trillion.  We would have to cut our spending across the board by 40% to balance the federal books. 10% across the board has been floated, that would only make a dent. One more time 40% needs cut, somethings can`t be cut at all, other things need totally eleminated. Sorry but in some incarnation entitlements need to be touched. We have no business sending a monthly SS check to someone with 5 farms and a motorhome. If America was a family this is the way their finances would look. Income $21,000.   Living expense  $35,000.    House and credit card debt  $140,000.  Now obviously Mr America`s wife is high maintenance, she needs a spending intervention  Smiley Happy  I just don`t see how Mr America can go to his boss (the taxpayers) and ask for a whooping ...get this....60% ..Raise.  Half the people don`t pay federal income taxes to begin with, those who pay just could not send Uncle Sam 60% more in taxes...we need to cut, cut, cut.  On the 179 deduction, that is in no way a freebie it only delays NOT eleminates the tax, believe me they will catch you down the line when you`re still making payments on what you expensed 5 yrs ago leaving you no money to "buy" current depreciations.

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Veteran Advisor

Re: Big uncertainties

yeah, I think you are right on ponying up and taking the 85% crop insurance and not worrying too much about forward contracting. Eliminates a lot of stress, and it protects you against losing money this year. Still better look out for pricing out years if given the chance on at least a percentage of the crop. Might be limit down for a few days now, though, with the Japanese thing trying to sort itself out. Lots of product won't move for the short term, and lots of Japanese money will be pulling out of our markets to be used back home.

 

Hope this doesn't turn into a "black swan" type of market mover.

 

Sorry for all the misery and death that the Japanese people are having to endure, too.

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Veteran Advisor

Re: Big uncertainties

Maybe Iraq could send us a trillion or so to help fund our war debt-----two wars and tax cuts---now that is something ?

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Senior Advisor

Re: Big uncertainties

Don't forget that the deficits is directly tied to lack of revenues and unemployment. This not a permanent phenomenon. Hopefully we wll see a reversal due to an improved economy.

 

You can certainly cut spending but do it to programs that are causing the loss. Not SS and not medicare.

 

Allowing fast depreciation detours or postpones revenues to the treasury. That is not unlike allowing us to deduct the next ten years worth of seed corn or fertilizer. deducting expenses before you actually

incur the expense. It is reasonable that the postponed taxes may never be paid. For example $200,000 worth of drainage tile may never be resold and subject to taxes. Any income made to pay for the tile would be taxed anyway whether they bought the tile or not. Unless of course he buys another $100k item and gets to avoid another $40K.

 

That is the way it works for the BTO's. I don't have anything against BTOs but they can year after year buy equipment or drainage tile and write it off each year. Thus a million or more goes untaxed while ordinary folks pay their taxes when they are due and don't have the opportunity for tax avoidance.

 

 

 

 

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Advisor

Re: Big uncertainties

   Red if you became of age during the 1985-2001 ou grew up in an unprecedented time of calm.  I'm 59 and from the Viet Nam war on  it was 1 thing after another.  Others here may disagree but the 16 year period I refered to was a realtively peaceful time to me.  Then with the 9-11 disaster another period of unrest began.  I know how you feel.  It's like 1 of those mornings where you tossed and turned all night.

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Advisor

Re: Big uncertainties

You need to move the beginning point of unrest into the '60s, Red.  Nuclear war threat with Russia over nukes in Cuba, race riots, civil rights protests, murders by anti-segregation groups, Watts (L.A.) riots and in Detroit and elsewhere.  Anti-war protests in the late 60's into the early 70's, Kent State massacre, the Kennedy assasinations, both JFK earlier and Bobby Kennedy later.  The Wallace assasination attempt, upheaval following passage of civil rights legislation....  I've probably left things out.  But, you get the picture.

 

Oh, the oil embargo and food embargo, not to mention high inflation in the early to mid 80s.  Do you have any idea how to survive in an age of 20 percent interest rates?  Are you in position to keep rates under 10% of revenue, especially when crop prices are heading down?  I lived through all that and still wonder how we made it through.

 

 

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