Farm And Ranch Country Posts

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Now, remember it is never so good it can’t get better and never so bad it can’t get worse.  That is a saying from a World War 2 combat veteran.  And, the cure for low prices is low prices, and the cure for high prices is high prices.  Unless of course it is the U.S. stock market and the Federal Reserve does everything to keep it up.  Off topic, high much higher would the Trump rally be if we would have let the stock market settle down a few years ago?????drought monitor 2016

And, commodity prices are like the weather in the Midwest, wait 24 hours and it will change, unless you are in the middle of a drought.

I also believe with the oil price deal, or attempt at a deal, and the possibility of a Southeastern drought moving into the Midwest this coming year we may get some positive movement in commodity prices.

One thing that is very real in production agriculture right now is the income to debt ratio is back where it was in 1985.  That is bad.

So maybe we get a rally next year, we still got to market the bulk of 2016 crop and the cycles point to a major low next fall.  Possibly early fall and a smaller low this coming January.  Not good, not good at all.

So, how does your farm stack up if the long term average for corn is not $4.30 but $3.40??????

It is a corn world because corn also affects every other crop out there.  It is also the major component in much of the feed we feed in the U.S.

How does this affect your agri-business if your customers have 25% less gross dollars in the foreseeable future.

I discuss this and more in this podcast.  To the smartest audience in agriculture.

Thanks for listening.

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How did I get involved with the Trump campaign?

How or why did I become a delegate running on the ballot for Trump?Donald Trump

How involved is/was my family?

How does one file at the State Board of Elections?

How did an 18 year old get involved in all of this?

What is it like to drive in a motorcade?

Secret Service aren’t like like super cops?

From our limited times behind the scenes, what was our impression of Trump?

How do they run a campaign on so few people?

Has Trump changed the “game”?

Myself and my 2 sons discuss these and other topics, like what was the National Convention in Cleveland like?

How did it finally evolve that I went as an At-Large Alternate Delegate elected at the State Party Convention?

And remember the last thing, if we are not having fun we are out of here.

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Ag retailers, grain elevators, equipment dealers – what do they look like going forward?

Especially with the current net income downturn that is going on in agriculture.  I think the game is changing and if this economic downturn lasts another year or two, it could change fast.

There is only so much gross per acre.  And, we all have to live off that gross, all of us.agribusiness grain elevator

I have nothing against agri-business, this is just business.  So what does the future hold???

The big get bigger, medium sized operations leave, retire, or get larger themselves.  Some down size to a more moderate size and get off farm jobs.  Sort of like, farm the most profitable acres and let the higher cost acres go, and get a job in town.  Go from a medium size farmer to a part time farmer.

This right here will change ag retailing.  a smaller part time farmer may need an ag retailer to do more of the field work for them.  Custom farming opportunities?

But, if a retailer loses too many medium sized customers what do they do for volume.

Most large and in the future more large operations do more for themselves.  Whether it be applying chemicals to hauling their own lime, to marketing their own grain through their own grain handling facility.  This cuts volume from the agricultural industry.  “Grab more of the pie for themselves.” Cradle to grave ownership of more of the total operations needed for their operation to run successfully.

“Cut out the middleman.”  In a lot of cases that may be you.

I also see in certain areas and markets an increase in direct marketing agriculture.  $8 “organic” square bale of hay.  Direct marketing of “home raised” beef.  Fruits and vegetables in farmer’s markets.  This will require a different kind of agricultural infrastructure.

Now some “organic: production is going to go big.  GPS cultivation, and the need for a certain amount of volume to spread fixed costs over.

Hog production is an example of how an industry has changed.  Grain farming is getting big quick.  Cattle feeding is coming back to the midwest and upper midwest.  Not as big as the mega feed lots in the great plains, but still large.  Dairy farming continually increases in size.

Going to be some re-alignment all the time. But, the economic crunch will cause this to happen at a faster rate.

Yes, some if not many of the large grain farmers will get in big financial trouble, but for everyone that fails, two more will try to get big to replace them.

Tight to non-existent profit margins only increase the velocity of change.

Gross dollars are much less than they were several years ago, when production costs were also less.  A lot less gross in many cases.  Not just grains but in the cattle sector also.  Everybody has to live out of that gross.  If farmers gross is $200 an acre less then they have $200 an acre less.  Yes, they were making money at those higher prices, but they were also spending it also.  Living expenses, land principle payments, boats, vacations, new car, new pickup, or a new shed on the farm.  It is gone.  Some also went in taxes.  And, in may cases from the extreme high gross dollars per acre many are down, $300,$400,$500 an acre.  Huge drops in gross and production expenses are much higher now.

Less medium sized farmers means less agricultural retailers.  I watch big guys buy all inputs wholesale and drive grain right past the coop elevator to their own grain complex.  Lots of agricultural input suppliers depend on 4 to 8 decent sized farmers to give them the volume to stay in business.  They lose a couple of them and they will have trouble.  Worse yet have 2 to 3 file bankruptcy with big bills outstanding and the retailer may be broke.  But, I will say I think one way in the future to get and maintain market share is to offer fall pay to your customers.  Not prepay for the next year but to finance your customers and get payment when they harvest their crop.  Provide actual 0% financing until the crop is harvested.

Grain elevators are also getting squeezed.  Elevators lose bushels to the big guys and to people who are expanding their land purchasing area, or farming area and haul those bushels back to their “home” elevator.  One way I think to gain market share is to pickup the bushels in the fall from the field.  Once you have those bushels you have them.

If gross does not increase it is going to get tough on agri-businesses.  Agriculture has to get to breakeven at some point and some of this is going to come out of ag retailers and other agricultural input suppliers. Break evens need to happen.

Probably long term we will have $100 to $200 less gross per acre than we did from 2008 through 2013.  Those 6 years were pretty good.

Implement dealers are already feeling it, but I think there is one or two more lean times just up ahead for them.  And, even if manufacturers get production down where there is not as many used machines, there still has to be money in farming to buy the new stuff.  It has to eventually be paid for out of the gross.

Seed costs are still too high.  The local retailer cannot do much to change what the major seed companies charge but eventually just like everything else seed has to be paid out of the gross.  Fertilizer has come down some, but it took major hikes in price during those good years.

I am not really guessing because I have been told by those who I think would know, but major seed and chemical input supplier company’s upper management really do not understand agriculture.

They are run by wall street guys.  They are more concerned about the stock price of their company than your and my survival.  And they should be concerned about their stock price, but on the same hand their customers have to somehow at least break even or they will lose market share which will drop their stock price.

Eventually it has to add up.

Last thing I do with this podcast is look at the costs involved and how the pie is being split up.

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Have machines replaced humans in driving the economy?  Lots of people are not happy with their economic situation.  What is really driving our economy and how is it affecting agriculture???

Rising prices for lots of basic necessities, but no inflation according to government statistics.

Low pay for lower economic jobs seems to be where all the job growth is.  Bar tenders and waitresses instead of manufacturing jobs. 640px-Vineyards_(1)

Lots of competition for the jobs that are out there.  “Fast food” economy?

Farm and Ranch Implications

Machines are taking over lots of agricultural jobs.  Big is getting bigger, faster, more efficient.

Self driving tractors?

Separation in the value of easy to farm ground versus hard to farm ground?

Grain farming needs less labor than it used to.  Dairy farming is going to robotic milkers.  Now you have grape harvesting machines.

High financial requirements

2 roads ag is going down.  One is big getting bigger and the other is direct marketing, labor intensive, giving a select group of consumers exactly what they want in food production.  Paid just to do it a certain way.

Are large farms bypassing traditional infrastructure in agriculture???  Big issue for agricultural support industries.

Direct marketing farms need a different kind of infrastructure.

GDP growth has not been above 3% during Obama’s entire term, first President to not have at least 1 year of 3% plus growth.  Is this partly because we are switching over to a machine/digital industrial model?????

World is also adding lots of debt to keep growth, but is this wise?  Sometimes it has to go down to go up.  But, politicians are always worried about negative economic growth.

Eventually will the people lose faith in the system?

Trump and Sanders voters as a whole are not happy with the way the establishment is heading the economics of this country.

Since 1980 debt has grown 14 times, but productivity growth has only gone up 6.2 times.  Lower interest rates have allowed us to service this tremendous growth in debt.  Government is really scared of massive deflation.  Wars are generally inflationary.  Pay off current debt with cheaper future money with inflation.  Many say it is easier to start a war than it is to forgive debt’

Maybe what we need is a massive debt forgiveness.  Just cancel all the debt.

Easy money equals asset bubbles.  Land prices are partially a result of no place else to get a return on your money, and a somewhat safe place to keep it.  Negative interest rates will affect the rate of return and the cash rent to land value ratio.

Fewer people control more of the wealth world wide.  Central banks and governments moving the economy not private interests.  Crony capitalism????  Going on worldwide.  Is the Brexit vote a breathe of fresh air.

I then at the end I try to pull this all together and see what this really means for agriculture.  Whether commercial production agriculture or community supported agriculture I think how the economy goes will really impact agriculture. I see several possible end results but in the end it may not end well.

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Screen Shot 2016-06-26 at 5.15.56 PMSome farm and ranch production agricultural organizations want to give voting rights to non producers.

Lots of big time agvocates do not produce agricultural commodities, but are still huge supporters of commercial production agriculture.

But, should they be given the right to set policy for production agricultural organizations???

Several recent examples that I know of.  Illinois Farm Bureau tried to expand who is eligible to vote and the American Simmental Association had a proposal to allow people who are members, but had not registered cattle in recent years the right to vote.

I am going to explore whether this is good policy or not.

Farm Bureau is not only waning to ensure a state wide organization, but also strong county organizations.  So, the question becomes how much do the large counties subsidize the small counties?  Several arguments for, several against.

Are you a banker or a farmer , farm bureau story from the 1980’s.

What if we need to put pressure on our input suppliers.  Of course lots of farm organizations have other business interests.

Staff needs members, they have to be able to justify an existence.  Critical mass or justifying the empire, however you look at it.

Several solutions, how about having larger operations pay more, fair share???  Not without problems, but NCBA does this now.

Some large operations have several families “living” off one membership.  Charge a per head tax???

Can social media change how farm organizations operate?

Are these organizations for business or social reasons, or both?

Why do you belong?  Because you have to?

Lots of boards have people doing the second or third term on the same board.

I believe we should move on to other leadership positions once our term is up.  Pros and cons for experience, but I would love more farmers on county boards, zoning committees, as a road commissioner, etc., etc.

Sometimes we people in production ag stay within ourselves and do not move up to bigger things.

Maybe we need something like farm and ranch business associated membership.  Lots of things to think about.  Once you give away the vote you will never get it back though.

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