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BA Deere
Honored Advisor

Impending liquidity crunch coming to Farmville.

 

http://www.zerohedge.com/news/2015-05-15/us-farmers-dire-straits-jpm-warns-imminent-liquidity-crunch...

 

Steve Johnson was on WHO Big Show talking about the fantastic emergence of this years corn crop, I have to agree it came up early and even as i`ve seen. Johnson doesn`t go too far out on a limb in saying next weeks `good to excellent` will be 85%.  there`s the whole growing season ahead, but if you`re going to raise a monster crop, this is the way that one is started.

 

The price repercussions of a monster crop, I don`t even want to think about this fall and 2016.  RA insurance will buffer a bit for this year, but 99% of the time your crop insurance doesn`t lock in a profit for you.  It`s a heck of a deal, new corn doesn`t look good now, it`s making lower highs and lower lows and could be a buck cheaper even from these putrid current prices.

 

Sorry for the gloom and doom, but I`m living it too, if misery loves company.

 

 

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27 Replies
westernia80
Senior Contributor

Re: Impending liquidity crunch coming to Farmville.

Another huge crop = lots of farm sales next winter, including mine

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timetippingpt
Honored Advisor

Re: Impending liquidity crunch coming to Farmville.

If you are not joking, and I assume you are, but if not, pretty easy to go do some Cargill Pacer Ultra's and live to fight another day. Sales price plus ins check plus capturing the carry still gets you well above $4.25 likely.

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westernia80
Senior Contributor

Re: Impending liquidity crunch coming to Farmville.

I am only partly joking,  I have very little storage so it basically everything goes to local elavator straight off the combine.  Marketing has always been my weakest attribute and it has cost me alot the last few years

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BA Deere
Honored Advisor

Re: Impending liquidity crunch coming to Farmville.

Back in 2007 if you could have given yourself one short simple piece of advice it would be, sell off the combine for the next 5,6 years.  depending on how big of crop and how long the tail, perhaps forward selling sooner rather than later and any overage sell off the combine in the fall of 2015.  I`m afraid there may still be some deep pockets and shiney bins that will be used again. 

 

*we get a drought or Janet Yellen fires up the printing presses, then all bets are off.

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westernia80
Senior Contributor

Re: Impending liquidity crunch coming to Farmville.

I agree until last year forward contracting was worse than selling off the combine most of the time which is the opposite of what I learned in marketing class in college back in 2001.  Maybe we should go back to the LDP days, I was pretty good at hitting them right.

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hardnox
Advisor

Re: Impending liquidity crunch coming to Farmville.

I've mused here periodically about farmers rolling debt to the long end and taking some extra cash out in anticipation of such an environment.

 

Might not be too late except for those who have already suffered some deterioration of their balance sheets.

 

Hard parts still remain finding things to do with it that pay the cost of money and in tracking the sources and uses of funds in the operation so as to not get a distorted view of actual performance. Just 'cause you have cash doesn't mean you're making money.

 

If you have plenty of bins then carrying grain like an elevator often pays good returns on the money, even if the cost of short term money is lower. Prepays etc. are options but the caveats apply about who you're trusting with your money.

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wrightcattle
Veteran Advisor

Re: Impending liquidity crunch coming to Farmville. Uncle B sending more $$$$ there

I tend to feel World grain is and has been bout $1 per bu to cheap for quite a while.

 

also tend to feel that $1 is generally being put back on grain now and thru the rest of 2015.

 

beans and wheat btw, could Both Easily move up $2 to 4 per bu over the rest of 2015.

 

$4 to $4.40 cash corn is pretty marginal as far as truly working for some producers.

$3.15 to 3.35 is just worse.

 

the Midwest lacks some diversity....soooo they have a lot of eggs missing on the chickie front and 2 much corn for the e use mandate.

the Government and Social Costs of the afore lack of diversity have been high...but going a lot higher now. 

say perhaps 4X more govt aid $$$$$ is headed for places like the I State areas there from the end of 2015 thru 2016.

 

 

 

 

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Hobbyfarmer
Honored Advisor

Re: Impending liquidity crunch coming to Farmville. Uncle B sending more $$$$ there

hardy: I'm throwing the B.S. flag here...

 

Borrowing long term money just because you want cash in the bank is a sure path to the Wal Mart greeters school.

 

Unless one is in the top ten of just lucky, the money will just get frittered away. In these times there is not the kind of margin for that foolishness.

 

If you have the power to borrow money just cause....you don't need and should be wise enough to not create debt with no particular plan to create more wealth with it.

 

Those that created more debt in the good times are already going teats up. Burning equity and creating needless debt in marginal, low, or no profit times will lead to a new career shortly.

BA Deere
Honored Advisor

Re: Impending liquidity crunch coming to Farmville. Uncle B sending more $$$$ there

I think some of what`s going on here is, money was borrowed due to the 'wealth effect" of $7 corn ie, "are you gonna combine $7 corn with that old leaky 7720?"..."are you gonna plant $400/unit seedcorn with that old 7000 planter?"...and  "corn is 7 bucks and your land cost is fixed, how can you not buy the best $400/bag seed??"

 

Also $7 corn created a tax problem, you pretty much have to get in the debt hamster wheel if you don`t want to write big checks to the government.  A big problem coming to fruition is when corn was 7 bucks, a guy would borrow at 5 year terms, it was the cheapest teaser rate interest, however with $3 corn the payments in the 5 yr term are getting prohibitive, for some the answer may be simple as rolling it into a 10 year note, to free up cashflow with a higher interest rate of course.

 

But gurus like David Kohl advised farmers to get bigger, he "worried" about farmers that were content with not growing.  So, the guy debt free owning 500 acres, a 7720 paid for combine and a 7000 paid for planter, got to thinking "I maybe better bid on that neighboring 120, it might not come up for sale again in my lifetime...well there you go, that was probably $1.25 million, then with the extra land, he had to buy more machinery to get more "timely" with his work...can`t let that $7 corn sit in the field ya know.

 

Almost a carbon copy of the 80`s  he says with 20/20 hind sight.