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BA Deere
Honored Advisor

Re: Impending liquidity crunch coming to Farmville.

Time, there were a number of farmers that were turned away at the bank or had to cough up a lung to get financed this spring.  Some probably went to other sources for credit, for one year alot can be put on a Visa card, Farm Plan or the coop might have financing but there`s a lien on the crop.  It all depends if corn is closer to $4 or closer to $2 this fall.  If it`s closer to $4 there will be another year where gimicks are allowed.  If it`s closer to $2, I think that`s where you`ll see a blood bath.

 

I have a buddy that the banker took his numbers and said he needed $4.50 corn, his cattle operation bailed him out and was able to get by.

 

That crop insurance just covers the bare minimums. If land cost isn`t a issue ie, paid off or cheap rent then a farmer could go on living off the amount of revenue that crop insurance covers for quite awhile.  But to have that extra revenue to pay for toys or purchased land won`t come from crop insurance.  I think many, myself included thought $4 corn would`ve been a floor..here`s it`s turning out that $4 corn is a ceiling  😞

 

Thing is with inputs, take seedcorn companies, I`m sure they poured alot of concrete and spent alot on equipment too and they need $300 for seedcorn just like we need $4 for our #2 corn. Something will have to give unless prices at least don`t fall further. 

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Red Steele
Veteran Advisor

Re: Impending liquidity crunch coming to Farmville.

Well, over in the forum we have a couple of guys that went on about how anyone could step into farming, any guy in their coffee shop circle could put on a farm hat, sign up for the farm programs, farm a lot of ground, hire the coop agronomists and buy the inputs from them, work two weeks in the spring and two in the fall, and be a 1% er. Or something to that effect.

 

I disagreed with that assessment , and I think this year will show how foolish it was to come up with that opinion. Farming is a business, for businessmen, and conjouring up the right way to keep expenses in line, yields respectable, and stay in the black is a challenge for virtually any generation. Anyone that expanded on their own dime in the last couple of years is feeling the hurt right now, and even for someone that paid average rents, and that didn't make the "right" crop insurance decision, and that doesn't have a lot of equity in land, its a nightmare going on right now, not next year, not two or three years from now.

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sw363535
Honored Advisor

Re: Impending liquidity crunch coming to Farmville.

Appreciate the comments Time and I will use our data (within reason) because it is a good generalization of the area.....except for one important fact......our water is pretty strong.

 

 

3) What is your product mix? 1/2 dry land acres (30% wheat, 15% milo, 10% corn, 5% sorghum feed and usually 1/3 of the acres are notil fallow and all is highly variable depending on weather, the last 4 years have been mostly wheat planted for cover)         1/2 Irrigated acres ( 70% corn, 15% soybeans, 10% wheat, 5% milo)      We have some cow/calf also and take in some yearlings on winter wheat when possible.  Store and deliver grain.  Very little mineral income.

If only growing one or two crops outside the "heart" of the belt, is that what creation intends? Taken with a smile, This is the condecention of the corn belt so I will just answer it this way,  I have asked that question and never received an answer although nearly every human seems to know exactly what God intended with the other guys land.  Intended to bring a smile.....

We have some good friends in sw KA that have quite a mix of revenue sources that have done very well the last few 5 years. Sounds like they have old irrigation with decent water and have diversified.  A wise move here.....But I would like to add, IMO the potential for growth & opportunity (or success however you measure it) is greater here ---if one has the constitution for it.

If only dryland crops, what do the neighbors do the other 80% of the year?  Theropy....... You are kidding right.......Spread manure if they can find it,  Straw, deep plow, chissel ----- anything to fight the blowing ground, πŸ™‚  Then work for their livestock or others..... In our county, I think there are two or three dry land only guys left.  Who are not farming on the side of a full time job...... Remember for every crop acre there is another fallow acre that needs weed control and cover protection for a full year.  And if you want to own a tractor with gps you better farm someeee acres.... a lot if you want to have a car as well...... 

 

2) In areas outside the "heart" of the belt, land values have not raced skyward, thus land cost hasn't increased for you like it has the rest of us...is that true for you? No       MT likes to point this out to me on occassion.  Time I think it is a false assumption, land values are doing the same everywhere.  It is the same economic issue nation wide.  Nothing else to invest in.

Our land has gone up 400% in the same period as yours has..  It is a simple cost comparison that a friend in Iowa taught me, what we spend on water you spend on land and that makes up for the cost difference in land.  Our land + water is not that much cheaper than your land, but it is out-of-pocket every year where you can write off the paid off land cost for a while.  All else is not much difference in our irrigation and your production....(that is why krafty(the "equalizer") wants to tax it more and maybe I should move to his side......... I don't see that happening...

 

 

1) Didn't crop insurance cover most of the production shortfall?  No  Using our field data and remembering insurance rates and coverage are scaled to production(meaning the poorer your yields the higher your premiums and the faster your aph's hit bottom)  Aph is much easier to bring down and takes longer to build back especially if you rotate.

,  Dryland  Milo for example, our drought fighter, has a premium that approaches 25% of the covered revenue and above 75% coverage you spend nearly a dollar to get a dollar.  IMO that is a big chunk of a $130/acre crop that is not covered by insurance ( 36 bushel per acre X 75% = 27 bushel covered at $3.60,,  $97 of protection costing 30$ per acre...... $30 + $33--25% not covered =$63 not covered by insurance out of $130 revenue expected....

Wheat works out a little bit better than that but not a lot....    IMO crop insurance covers about half of production shortfall dry land.  It looks better for irrigated crops on paper but not when you consider the production shortfall.... Most are raising (without problems) 220bu corn and insured for 180X75%=135bpa  with costs that approach or exceed 160 bpa....

Short view----- the insurance is scaled to protect itself in volatile areas... and it probably should be..  That dryland milo or corn will make 80 bpa the other half of the years.  Wheat 40 bpa......  Those years come in bunches...and so do the dry.  I developed some irrigation in the late 1990's and some of it has a yield history of 220+, but the crop insurance was forced to use my dryland history for nearly ten years and I rotate so I am just now able to work my way out of bad history since we rotate crops

 

, 2012 for example,  We harvested none of our dryland acres and still had planting, fertilizer, and weed control costs on every acre.  Raised a weak 160 bu irrig corn average. Decent Beans at 60 bpa.   The claims on the dryland acres paid the premiums on all acres---- that is it.  No claims on irrig.   Did the insurance cover production shortfalls... ?       2013 and 2014 we got some over premiums but not 25 cents on the dollar spent  The price improvement was all that payed the bills with the irrigated crops covering all costs...

We don't use the insurance except when a drought forces us to.

 

 Time, here is another loss that kicks us hard and is never covered by insurance.  and hopefully I won't get too much hissing, but we are in a good marketing area.  Corn basis is usually $1 over Iowa, give or take.  Often that is half the net revenue since we store and deliver.  (remember our out of pocket costs are much higher than yours) That is a loss of opportunity from lack of production that you can't protect.

 

Again, not trying to disagree, or even ask about your own farm, but trying to ask questions to deepen my knowledge of the situation in your part of the world. Your post would indicate that my thoughts about PLC/ARC and crop insurance are not accurate.

 your thoughts on PLC/ARC and crop insurance are probably accurate...... for your area.  But if you are assuming the program fits all the same you might be wrong...not my opinion, just a possibility.  Again I remind,,,,, if you seperate the states receiving 35 inches or more of rain from the rest of us you will only have half the corn crop projected.  Does that mean the price decline is our fault??  πŸ™‚

Depends on who you ask..... but I think somebody needs us all to maintain this level of usage....

 

 

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hardnox
Advisor

Re: Impending liquidity crunch coming to Farmville.

Didn't say that.

 

What you said was that your knowledge of the business is so essential to the world that it would stop if the people who are persecuting you succeed and you might just go John Galt and run off to Libertarianland to show them.

 

I just said that there is a ton of capacity out there and the world won't blink if I go away. True of a 15,000 acre BTO, too. Currently. The equipment and financial capacity is out there to absorb hundreds if not thousands of them. My guess is that the banks will pull the trigger quickly as they recognize that- small hits now could turn into bit hits later.

 

I don't see a systemic crisis hitting ag anytime soon but do see soemthing different than what we've seen in the past. In the last cyclical downturn we didn't have large numbers of 5-15K primarily rent based crop operations. Now we do and the financial strength and management capacity of those operations is all over the board.

 

As the saying goes, the tide is going out and now we're going to find out who's swimming naked.

sw363535
Honored Advisor

Re: Impending liquidity crunch coming to Farmville.

In my simple mind I see one change for 15 and maybe 16

 

production has to carry the day when price does not.  

 

Big problems are going to be if one has lost some ability to produce in the last 4 years.....

 

 

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Shaggy98
Senior Advisor

Re: Impending liquidity crunch coming to Farmville.

SW, just to clarify about the losing ability to produce.  I haven't lost the ability or the desire to produce, but I haven't been given the most ideal conditions to produce a wheat crop the past few years.  Milo and forage sorghums are a different story, I've been blessed with those two since 2013.

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sw363535
Honored Advisor

Re: Impending liquidity crunch coming to Farmville.

The only reason price became a factor the last 4 years was 2012.  The drought moved into the corn belt for one year and usda could not ignore it like they did in 2011.

 

Shaggy you are touching on what I am saying..... Now that we have "record cropped" the price down we are set up for diseaster if the drought hangs on in fringe states like ours or if local water supplys are lost like in california. Or localized flooding persists anywhere.

production is hammered, crop insurance covers limited production losses, price is down and expenses are very high......

 

It will happen somewhere.............. the corn belt floods might have the best insurance help since they have had better production to hold onto their Aphs....

 

kind of a perfect storm for someone unless the flooding covers a lot of the belt....  Usda recognizes no one else

 

 

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helenhans
Frequent Contributor

Re: Impending liquidity crunch coming to Farmville.

There is no single methodology for determining the liquidity of a bond issue. The guys from thecentsofmoney.com know exactly what to do in such situations. The parameter of the average trading turnover is taken. The more transactions on the bond take place during the day, the greater the volume of securities can be realized by the investor in a short time. The more securities in circulation, the more likely it is to realize the required volume through trading on the exchange. However, it should be borne in mind that a significant share of the securities may end up in the hands of institutional investors who expect to hold them until maturity and practically do not participate in trading on the exchange.

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