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Moneywise

March 3, 2010
 
 


Budget Cuts Strike Agriculture

The President's first budget proposed large cuts in crop subsidies to "wealthy farmers” in 2009, but that didn't happen. This year, President Barack Obama has again proposed slashing the adjusted gross income (AGI) ceiling for government payments.

"If the proposed AGI limits are applied, then over time, government payments will become a small part of farm revenue,” says Art Barnaby, Kansas State University economist. "They surely will not reflect the ever-rising costs to farmers; payments already are small compared with today's farming costs. This is my scenario of how USDA will exit commercial agricultural production, but I fully expect the agency to continue its regulatory roles.”

In addition, the proposed budget cuts in crop insurance tally $1 billion a year for 10 years. USDA's Risk Management Agency has earmarked $800 million a year to be cut via its multiyear reinsurance agreement, currently being negotiated with the insurance industry. Primarily affected would be payments to the companies that deliver crop insurance products to farmers, justified on the basis of the past few years, when high commodity prices pushed payments to companies higher. That created "huge windfall profits,” according to the administration.

Companies argue that the growing list of pilot products, combined with the higher cost of doing business, means it will be difficult to properly serve farm customers. 

New in 2010. Coverage for specialty soybeans is new this year.

It is a yield product, not revenue, and you use past yield records for the average production history (APH) for each type you grow. "Buying separate coverage means that lower yields will not drag down the APH for conventional beans,” points out Steve Johnson, Iowa State University economist. "The indemnity is based on the higher of the contract price or conventional APH insurance price.”

There's new urgency in making sure the names on your crop insurance policy, various entities and tax ID numbers all match those on your forms at the Farm Service Agency, he adds. "If you switch partners, for example, be sure to tell your crop insurance agent.” USDA has a major initiative to standardize all records, and discrepancies can cause challenges to claims.

Twenty-six senators have objected to the scope of the proposed reductions. For more viewpoints on the cuts, see Top Talk. —Linda H. Smith

 



Nine Billion and Counting

Is agriculture ready to feed the world? By 2030, farmers will have 9 billion mouths to feed, compared with about 6 billion now.

"At current yield levels, we would need 250 million acres more—equal to all of American farmland—to meet the demand,” says Aaron Robinson of Asgrow.

He gives the following necessary production increases:
• Soybeans: 125%
• Cotton: 102%
• Corn: 76%
• Wheat: 42%
• Rice: 28%

The U.N. Food and Agriculture Organization (FAO) reports that any added farmland would help produce only 20% of the additional food that the world will need in 2050, and 10% would come from increased cropping intensity.

That means 70% of the world's additional food needs can be produced only with new and existing agricultural technologies, according to the FAO.

"It will take advances in breeding and agronomic practices to meet this challenge,” Robinson says.

Expect soybean yields to begin a sharp upward climb in the next two years. "Soybeans are where corn was a few years ago,” Robinson says. "The pipeline is full and we will be introducing innovations that rapidly drive yields and value higher on a regular basis.” —Linda H. Smith

 



New H-2A Rules Announced

The Labor Department has released new rules for the H-2A Temporary Agricultural Worker Program. Under the changes, companies that seek H-2A visas for ag workers will have to provide documented evidence that they have looked for qualified U.S. citizens to fill the jobs. Previously, they only had to indicate they had looked for qualified workers. The rule will be effective March 15, 2010.

The Labor Department will also soon issue information on wages for workers under the program. The agency said in announcing the changes that the Department of Homeland Security (DHS) may not approve an H-2A visa petition unless the Department of Labor "certifies that there are not sufficient U.S. workers qualified and available to perform the labor involved in the petition and that the employment of the foreign worker will not have an adverse effect on the wages and working conditions of similarly employed U.S. workers.”

During fiscal year 2009, employers filed 8,150 labor certification applications requesting 103,955 H-2A workers. The Department of Labor certified 94% of the applications, for a total of 86,014 workers. —Roger Bernard



 



Dollar Days

The U.S. is in an era where we don't know what kind of markets we'll wake up to each morning, said Dan Zwicker of ADM Grain Group to a crowd of farmers during a Top Producer panel discussion at the National Farm Machinery Show this past month. That's why each morning when Zwicker goes to work on the ADM trading floor, he looks at the value of the dollar.

"If you look at the direction of the dollar, you have a good sense of what is happening to corn and soybean prices,” Zwicker said.

"It is very easy in today's marketplace, with skinny margins, to let the market get away from you.”

Zwicker is also a fan of farmers using options for risk management. "With options, for a fee, it gives you the second chance to sell at a higher price,” he told farmers. "For the most part, my observation is that farmers who have used options in their cash contract with their local elevator during the past couple of years have been happy. It's given them a sense of downside price protection during bearish markets, but it also gives them the opportunity if things turn around to sell at a higher level.”  —Jeanne Bernick

 



Banking Advice: Be a Good Customer

During his 37 years at Farm Credit Services, Roger Schlitter learned a lot from his customers. "I didn't try to measure someone's worth by how much they farmed,” says Schlitter, who now operates Roger's Farm Financial, a consulting firm based in Mason City, Iowa. Schlitter provided the following advice during the 2010 Top Producer Seminar on how farmers could be better customers to financial institutions:
• Lenders and customers should have good attitudes.
• Recognize the real reasons for your successes and failures. Be brutally honest.
• Pick your information sources with care. Don't just listen to those who say what you want to hear.
• Stay in a position to call your own shots.

—Sara Schafer


 



Top Liners

"If someone is working just for a paycheck, they won't be with you very long.” Pat Duncanson, Top Producer of the Year finalist

"I've never seen a tighter credit situation than I'm seeing right now.” Jacob Chapman, 1st Farm Credit Services, Ottawa, Ill.

 



Top Producer, March 2010

 

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FEATURED IN: Top Producer - MARCH 2010

 
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