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Moneywise

November 6, 2009
 
 


Budget Squeeze Continues


Net farm income fell $33.2 billion in 2009 to $9 billion below the previous 10-year average, USDA reports. Next year, margins will still be squeezed, says Purdue University ag economist Bruce Erickson. "For the second year in a row, margins will be less than they were in 2007 and 2008," he says. (For Purdue's Crop Cost & Return Guide, go to www.agecon.purdue.edu/extension/pubs/index.asp.)

A less obvious expense is also likely to slam farm businesses: Health insurance premiums at small businesses (fewer than 50 employees) have increased more than 80% and the cost for families has increased 93% in the past decade, reports the U.S. Department of Health and Human Services. These expenses are likely to rise further in 2010.

Moves to contain premium costs include higher deductibles, higher co-pays and a larger share of premiums paid by workers—all of which would be of little help to family businesses such as farms, where expense hits home whether it is paid by the business or the worker. —Linda H. Smith

 



Water Takings Aren't Free

After a 16-year legal battle regarding water in the San Joaquin Valley of California, a federal appeals court told the U.S. Bureau of Reclamation that it must compensate two regional water districts for water that was diverted for environmental reasons. The logic: The government's taking the water was a breach of contract.

The same court ruled earlier that the government must compensate another California water district for water lost to a fish ladder built for steelhead trout.

Key to these decisions was language in the contracts that specifically differentiated between water shortages beyond the control of the federal government and those in the government's control. As a result, it isn't entirely clear how broadly this ruling may be applied to other contracts. In determining whether districts are entitled to recover damages from the government, it will be necessary to consider the language in their contracts, the reasons water was not delivered and other issues. It also is uncertain whether any payments will trickle down to end users such as farmers. —Linda H. Smith

 



Top Liners

"Uncertainty is at the center of economic outlook." David Schweikhardt, Michigan State University ag economist

"In 1981, unemployment peaked over 11%, but it started at 6%. Today it is over 9% and started at just 4%."
John Anderson, Mississippi State University ag economist

"The recession means lenders need to look at farm household finances—the loss of an off-farm job could greatly reduce funds."
Matthew Diersen, South Dakota State University ag economist

"Quality is not an act. It is a habit." Aristotle, Greek philosopher

"In the past, a leader was a boss. Today's leaders must be partners with their people. They no longer can lead solely based on positional power."
Ken Blanchard, leadership coach


 



Winter Fuels Outlook

You should pay less for heating this year, reports the Energy Information Administration (EIA). The lower 48 states are forecast to be 1% warmer this winter (October–March) than last winter and 1% milder than the 1971–2000 average, with greater regional differences (Midwest, 4% warmer; West, 4% colder).

 

Savings vary by type of fuel as well:
Natural gas: 12% lower price
Heating oil: 2% lower price
Propane: 14% lower price
Electricity: 2% lower price


 

EIA expects West Texas crude oil to average about $70 this winter and to increase to $75/barrel by December 2010, as U.S. and world economic conditions improve. After averaging about $3.85/Mcf in 2009, EIA projects Henry Hub natural gas to average $5.02 in 2010. For EIA's full forecast, visit: http://www.eia.doe.gov/emeu/steo/pub/contents.html. —Linda H. Smith



 



Who Will Capture Carbon Value?

A study by USDA's Economic Research Service indicates that large livestock operations in the Northern Plains and Mountain regions are the most likely to participate in carbon sequestration. "Half the total carbon sequestration potential is concentrated on just 7% of farms, which operate 38% of all farmland," reports USDA economist Roger Claassen. Here's what sets these operations apart:

About two-thirds of estimated carbon sequestration potential comes from land-use change—shifting cultivated cropland to grass, Claassen says.

It is likely that carbon sequestration credits will require multiyear contracts, making it more difficult for renters to sign up than owners.

Operations that own more than 80% of the land they farm or ranch may be in the best position—they already tend to maintain a relatively large proportion of land in hay and pasture; they account for more than half of all livestock sales; and they are more likely than other farms to enroll in the Conservation Reserve Program.

So perhaps the biggest carbon sequesterer will be Ted Turner, the nation's largest landowner, with 2 million acres—mainly ranchland? —Linda H. Smith

 





 



Top Producer, November 2009


 

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FEATURED IN: Top Producer - NOVEMBER 2009

 
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