Jul 24, 2014
Home| Tools| Events| Blogs| Discussions| Sign UpLogin


October 2008 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

Obama or McCain: Who's best for dairy?

Oct 28, 2008

By Jim Dickrell, editor Dairy Today


Ok, the 2008 presidential election is a mere seven days away, thank the Lord. And if you haven’t made up your mind on whom you're going to vote for, well, time is a-wastin'.

I fully realize my opinion on all things political carries as much weight with most readers as the paper it's written on. And since this is coming to you electronically, that weight has to be measured in the atomic mass of electrons….
 

I also fully realize that some will vote for Sen. Barack Obama because he's not a 90% mirror image of the current White House resident and because he did not jump into the deep end of the cold north Pacific to select his running mate.
 

Others will vote for Sen. John McCain because he's not Obama, he's not half-African American (yes, some weak-minded people still let racism fuddle their brains) and because he picked that perky, plain-speaking Governor from Alaska as his V.P.
 

Two of my Farm Journal colleagues took the tongue-in-cheek approach to election-year commentating in their October issue. John Phipps writes: "A politician’s ambition, of course, is to move up the political ladder until he or she reaches the acme of public service: state retirement."
 

Steve Cornett, at Beef Today, bemoans the fact that neither campaign offers any specific goodies for the cattle industry: "I guess it's not surprising. There aren't enough cow people to populate a feedlot fly strip, much less constitute a demographically important voting bloc."

Roger Bernard, Pro Farmer Washington editor writing for Farm Journal, did a good job of encapsulating the positions of McCain and Obama.

But don'’t look for anything on dairy policy because, just like Cornett found in beef, there ain't none. And realistically speaking, your economic future probably hangs on more than the level of dairy price supports, Federal Order make allowances or DEIP allotments.
 

The three key dairy issues this election, as I see it, are energy, immigration and trade.

• Energy. Oil prices and ethanol tax credits are closely tied to feed, transportation and fertilizer costs. McCain wants to "Drill, baby, drill," build more nuclear plants and "eliminate mandates, subsidies, tariffs and price supports that focus exclusively on corn-based ethanol." Of these, only the latter could provide immediate price relief for feed stocks.

Obama wants to require that 10% of electricity come from renewable sources, including wind, by 2012. He says little about ethanol, though he would provide additional subsidies to ethanol plants that have 25% local investment, and would require at least 60 billion gallons of advanced biofuels by 2030. Again, little immediate relief--though dairy producers hoping to build windmills on the back 40 might take note.

• Immigration. Reading both Senators' plans is remarkable in how similar they are to one another. McCain would "prosecute 'bad actor' employers." Obama would "crack down on employers that hire undocumented workers."  So, if you received a no-match Social Security letter on an employee and didn't reply, does this put you in the sights of both candidates?

Prior to running for President, McCain was left of President Bush on immigration, who himself made an attempt at reasonable reform. But once Sen. McCain became Candidate McCain, he had to appease his right wing, and all reasonableness left the building. Obama has been able to maintain his more "humane" approach throughout the campaign. And with a potential 60-seat, cloture-proof Senate on his side of the aisle, Obama might actually be able to enact reforms.

• Trade. With 10% of U.S. dairy production now being exported, trade policy should get a whole lot more weight in your decision matrix. If the borders ever shut down, it means nearly one million U.S. dairy cows will be out of work—and that's scary. McCain is a free-trader, and "he will pursue multilateral, regional and bilateral efforts to reduce trade barriers." Those include free trade agreements with Colombia and South Korea. McCain doesn’t mention the Pacific 4 agreement that includes New Zealand, but one has to assume the free trader that he is…. He also wants to "end all agricultural tariffs, and all farm subsidies that are not based on clear need (emphasis mine)."

Obama wants to "fix the North American Free Trade Agreement (NAFTA) so that it works for American workers."

That could be problematic for dairy, since Canada is our #1 dairy export market, believe it or not, and Mexico is #2. Together, they account for nearly one-third of our exports—"employing" more than 300,000 of our cows. Tinker with NAFTA, and you jeopardize that market access.

So there you have it. Easy choice, right? Don’t forget to vote.

 

--Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at jdickrell@farmjournal.com.

This column is part of the Dairy Today eUpdate newsletter, which is delivered to subscribers biweekly and includes dairy industry analysis, dairy nutrition information as well as the latest dairy headline news. Click here to subscribe.

Dairy financing gets tougher

Oct 15, 2008
By Jim Dickrell

The events of the past few weeks-the meltdown on Wall Street, the stock market crash, and the liquidity crisis in lending—calls for steady hands and even steadier nerves. This is serious sh…stuff.

Lenders I spoke to at World Dairy Expo two weeks ago say they’ve had bank regulators combing through their records and loan portfolios with magnifying glasses. Every “i,” every “t,” has to be dotted and crossed, sometimes in triplicate.
 
The regulators, these lenders say, are receiving a lot of heat for lax standards in housing loans. Now they’re pushing back, making sure every loan is backed by the proper documentation. So don’t be surprised if your lender wants more information from you, or an updated inventory if you haven’t provided one in the past year.
 
Lenders I’ve spoken with in the last few days offer reassurance that credit is still available to qualified dairy producers. But every new loan, no matter who the borrower, will receive intense scrutiny.

“There is credit available to our clients who qualify for it,” says Greg Steele, VP of agricultural business capital for AgStar Financial Services. “Are we more cautious? We have to be. But shutting off lines of credit, that’s not the case.
 
“The advice we’re giving our clients is to be cautious and guarded because of all the uncertainties in the market,” he says. “We’re looking for high levels of working capital because of all the market volatility. And risk management is going to be huge in highly leverage operations who are more at risk.”

Michael Swanson, VP and senior economist with Wells Fargo, echoes those thoughts. He also warns credit will be more expensive going into 2009, despite the Federal Reserves’ lower interest rates.
 
That’s because many banks now use the London Interbank Offered Rate (LIBOR) index (http://www.investopedia.com/terms/l/libor.asp), which is market driven.  “The cost of money is going up substantially,” says Swanson.

“Over the past 20 years, that cost might move 25 basis points (0.25%) at a time. Now it’s jumping more than 100 basis points each time.”
 
“Certainly, interest rates are currently very volatile and have increased recently,” agrees Bill Needler, senior relationship manager for dairy for Rabo AgriFinance. “It is very difficult to predict what will transpire into 2009.” 

Some producers might want to lock in rates now, fearful they will go even higher. Needler urges caution: “The decision to lock in rates should be a separate issue and depends on the break-even cost of production, the producer’s liquidity, cash flow and production arrangements.”
 
The other problem is that dairy producers are sometimes they’re own worst enemies when it comes to borrowing, says Swanson. “Dairy producers don’t like paying interest, so they borrow for equipment or facilities on short time frames rather than borrowing the money over the life of the asset. But that takes away working capital that might be needed in times like these,” he says.

Refinancing is sometimes an option. But that, too, can get expensive as interest rates rise and closing costs escalate. 
 
“Each individual borrower’s situation is different,” says Rabo’s Needler. “We continue to consider [refinancing and extending time frames] for our qualified dairy producers where it makes good business sense.”

If expansion is in your 2009 plans, lenders are urging caution. “Our core standard at AgStar is 50% equity on expansions,” says Steele. “Forty percent is our absolute bottom, even for our best customers. And that’s moving up to 45%.
 
“It has really turned around from a month ago,” he says. “Now, going ahead with an expansion loan might not be in our client’s or AgStar’s best interest.”

As harvest wraps up in the next few weeks, lenders say your next priority should probably be a meeting with them. A frank discussion of 2009 operating loan needs might not be pleasant. But now is better than later, which could turn into never. 
 
If there’s one thing lenders hate, it is unpleasant surprises. So make the call, and keep 'em happy.

 --Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at jdickrell@farmjournal.com.

This column is part of the Dairy Today eUpdate newsletter, which is delivered to subscribers biweekly and includes dairy industry analysis, dairy nutrition information as well as the latest dairy headline news. Click here to subscribe.
Log In or Sign Up to comment

COMMENTS

Receive the latest news, information and commentary customized for you. Sign up to receive Dairy Today's eUpdate today!

 
 
 
The Home Page of Agriculture
© 2014 Farm Journal, Inc. All Rights Reserved|Web site design and development by AmericanEagle.com|Site Map|Privacy Policy|Terms & Conditions