Two words well describe this fall harvest, tremendous and tough. How producers feel about it will depend on which word fits them most closely. I grew up in NW Kansas and twenty five years ago we grew virtually no corn or soybeans. My dad finished his harvest there recently, all on dryland acres, and not only is he now growing them, but the beans averaged 55 bpa and the corn 147! Another farmer in the area was quoted like this, "I've seen crops in our area wearing their Sunday go to meeting clothes several times in my lifetime. But I've never seen them wearing a tuxedo before." Warm temps this week will go a long way toward moving that tuxedo toward the bins. However, the top end of the harvest nationwide is coming down due to various late harvest issues. Wet conditions will not only harm the harvest, but the soils that grew them, as harvest equipment moves through mud to bring the harvest in. This will be a memorable year.
A timely update on relevant legislation, from ASFMRA's Legislative Action News, Vol. 1, Issue XVII, November 3, 2009:
Estate Tax Pushed Back
The House will not vote to extend the estate tax until after it addresses health care and a package of initiatives to create jobs and jump-start the economy, Ways and Means Chairman Charles Rangel (D,NY) said last week.
House Democratic leaders had planned to bring up a bill to set the estate tax at the 2009 rate of 45 percent, with an exemption for the first $3.5 million of inherited assets. The $233.6 billion measure would cut the estate tax for wealthy families in 2011 from the 55 percent rate it is scheduled to reach, with the exemption lowered to $1 million.
Senate Democrats are unlikely to take up a permanent fix at all this year. Instead, a one-year extension of the 2009 estate tax would likely be added to a year-end package of expiring tax breaks. That would at least prevent next year's scheduled temporary repeal of the tax, which would make it much more difficult to reinstate the tax in 2011.
We believe that both micro-economic and macro economic trends are behind increased financing challenges, some of which are currently lying under the surface but will blossom at loan renewal time. I'll be attending DTN's 2009 Ag Summit and have a breakout session on this area, entitled Put Your Best Financial Foot Forward. Whether you can make that session or not, Marcia Taylor told me this afternoon that registrations are running strong and this will be a good conference for education and networking this winter (assuming your harvest is out of the field!) I am going to include some 'Borrowing Issues' from our November Feedyard Insights newsletter that are especially relevant to large, complex ag credits.
Loan Consolidation
In response to the difficult credit and regulatory environment over the last year, many lenders are moving toward more consolidated loan packages. Loans that are cross collateralized across multiple related entities, and with associated personal guarantees, are an effective way for banks to manage large, complex credits and the regulatory attention that they draw. However, these loan consolidations create many often unintended consequences, among them the effect on government farm program participation. According to April Hall of Kennedy and Coe, LLCs Farm Program Services group, these loans can violate capital contribution requirements and raise the risk of audit and penalty of farm program payments. There are ways, however, to structure a consolidated loan properly for farm program compliance.
Partner Liability
An even more significant concern with loan consolidation is that general partners in an entity involved in a consolidated loan could unknowingly become liable for the entire consolidated loan. A general partner in a cattle feeding entity, for example, could have been liable for a $5 million line of credit for years with full knowledge. However, as part of a debt reorganization and consolidation, that partner could become fully but unknowingly liable for $50 million or even more should the partnership loan be consolidated with the cattle and land loans of other entities that the partner may have no ownership of. The larger the entities, and the more consolidated their loan instruments, the more complex the risks for all parties, and the greater the need for disclosure and education regarding exposure.
JBS continues to push the envelope of aggressive growth strategies and the regulatory (and producer-level) scrutiny they attract. Just in time for Thanksgiving, JBS announces it will buy bankrupt Pilgrim's Pride. The company will lead world meat output with beef, swine and now poultry. A fascinating family business story, the founder Jose Batista Sobrinha carried sides of beef to market on his back, early in his career. The company will now be prepared to slaughter upwards of 140,000 animals a day, and employ 129,000 people around the world. That is a lot of protein. I'm always intrigued to see non-ag press pick up on ag interests, and The Economist has an interesting current piece on the JBS juggernaut.
http://www.economist.com/businessfinance/displaystory.cfm?story_id=14770167
"Remember all the things that would happen "when pigs fly?" Well, now we've got...swine flu!"
(with apologies, it is H1N1) - from my sister-in-law Rosanna
Written/edited by Greg Wolf, Agriculture Group, Kennedy and Coe, LLC
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