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Moneywise

July 31, 2009
 
 


Don't Ignore Acre

You can't be sure whether it will pay you more to go with the new Average Crop Revenue Election (ACRE) or stick with the traditional farm programs, says Carl Zulauf, Ohio State University Extension economist. "However, because ACRE protection cannot decline or rise more than 10%, we can project the minimum coverage," he says. As the chart shows, the new program tops the old.

Only cotton and peanuts appear likely to get more payments from the traditional program, based on the assumptions Zulauf used. "There are a number of calculators available to estimate your benefits. I'd compare several because one might better match the way you think about your decision than another," he says.

However, Zulauf says, the real question you want to investigate is, Which will manage my risk? "In other words," he says, "which choice best matches financial stress you might face."

Deadline is Aug. 14; don't wait too long, as Farm Service Agency offices could look like the post office on tax day! —Linda H. Smith





Hedge Your Operating Credit

Tim Richter started farming in the 1980s. His first operating loan carried an interest rate in the teens. He doesn't ever want to go there again. "We've enjoyed years of very low interest rates," the Lime Springs, Iowa, farmer notes. "But now everywhere I turn, analysts are predicting inflation and rising interest rates. I feel I just have to manage that risk."

With the help of Nate Smith at Jerry Gulke's Strategic Marketing Services, Richter is hedging his interest rate risk through 2014 using Eurodollar futures.

"These are tied to the LIBOR rates—which banks use in setting interest rates; they are not currency-related," Smith explains.

Eurodollar contracts are the single largest traded futures contracts in the world, so they are liquid; they are offered 10 years out and protect $1 million in credit for three months. Initial margin is about $1,150.

"Say you want to protect the interest on a $1 million line of credit in 2011," Smith says. "We would sell one March, one June, one September and one December."

They are not risk-free, but because of the way they are quoted, risk of loss is low, since interest rates generally don't go negative, Smith adds. —Linda H. Smith

 

 



Climate Bill: Plus or Minus for Farmers?

The American Clean Energy and Security Act of 2009, passed by the House of Representatives in late June, allows farmers to fully participate in a carbon offset program, which permits payment for farm activities that help reduce greenhouse gas emissions.

It contains other bonuses for agriculture, including moving oversight of carbon-reduction efforts by farmers from the Environmental Protection Agency (EPA) to USDA, providing a list of eligible agricultural offsets and prohibiting the use of indirect land use calculations in evaluating biofuels.

"This is the best deal agriculture could have gotten out of the House," says Laura Sands, a partner at The Clark Group, an environmental consulting firm. "If Congress doesn't enact some type of greenhouse gas emissions policy, we've received a clear message that EPA will. Agriculture will fare much better through a cap-and-trade policy than regulation by EPA."

Not So Sure. Many farm groups fear the bill will hurt ag producers. The American Farm Bureau Federation estimates net farm income will drop at least $5 billion/year by 2020 if the legislation passes.

The National Pork Producers Council foresees significant increases in energy prices and pork production costs.

Some agricultural groups also worry about provisions that would impose tariffs on imports in 2020 for any country that doesn't take the same climate-change steps as the U.S.

To learn more about climate change and related legislation, visit www.epa.gov/climatechange. —Jeanne Bernick

 



2010 Top Producer Seminar Dates Set

Our annual seminar is slated for Jan. 27–29, 2010, at the InterContinental Hotel in downtown Chicago. Themed "Win in the New Economy," it will include a banker roundtable on current credit conditions, risk management techniques, updates on ag policy and trade and a slew of marketing and outlook insights—plus much more.

The second annual Top Producer Young Farmer Program will precede the Seminar, on Jan. 26. It will focus on topics that pertain to young farmers and the generation that is passing the farm on to the farmers of tomorrow.

Registration opens Oct. 1. Click here for more information.

Top Producer of the Year. As a reader of Top Producer, you are no stranger to the Top Producer of the Year Award. Our features about winners are designed to share their strategies for success that others might be able to adopt as well, in marketing, farm
finance, family and employee relations, technology and environmental stewardship. Awards are presented at our seminar. Why not apply for the 2010 award? Visit TopProducer-Online.com. Entry deadline is Sept. 30, 2009. —Greg Vincent



Top Liners

"Agriculture is a capital-intensive industry coming out of a 100-year bear market." Joe Carvin, CEO of Altima Partners, a hedge fund

"As recently as five years ago, I would not have imagined agriculture would draw the attention of the public and the press that it does today." Philippe de Lapérouse, HighQuest Partners

"Broadband [Internet] is a game changer and central to the rural renaissance." Tom Dorr, former USDA Undersecretary for Rural Development


 

 



Top Producer, Summer 2009

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