What can we do about it?????????

[farmers_son]

I found that comment very interesting. I guess the reason people have to work to supply food for someone else and then go to work besides is because if she is not willing to do that then someone else is. I do remember when the farm lenders would not lend money to anyone if they were working off farm. If you could not show repayment ability from the farm then there was no loan. When FCC and the other lenders changed that policy the handwriting was on the wall and farm land began to be owned by non farmers.

I am sure that raised the price of farm land. Those looking to sell reaped that benefit while those looking to expand while farming full time felt the pressure of the policy change. I guess government wanted to stop deciding who owned farm land. It would seem to me that farmland would eventually end up being owned by people who do not even try to farm it. The actual farming would be done by renters like in England and Scotland. That is was what my ancestors came to Canada to get away from.

Regarding insurance. I recall reading in the Western Producer of a very large farm that went bankrupt. The farm had land spread over a very large area and thought they could not be hailed out everywhere at once. They were wrong and with no insurance they were toast. Even though the risk of hail may be very low in your area, even though no one alive remembers ever being hailed, it could still happen. And it could happen the year after that too. It has hailed here every year since 2000 and most years before that. That is actually an advantage for me because I realize the risk. The people who feel they are in a sure crop country may still have to learn that there is no sure crop country.

It is a fallacy to think you could put the premiums into a bank account and self insure. Without insurance you have unlimited risk, you could loose it all. For me that is an unacceptable risk. I looked at it like spinning the wheel at a game of chance. You put down all the cash you have and you might win that cash back even some more but you might loose part or all of your cash. If you loose all your cash you are out of the game. If you loose part of your cash two or three spins in a row you are out of the game. However if someone would guarantee you that you would have enough cash to spin the wheel over and over again would give them some of your cash for that guarantee? I think I have to be able to spin the wheel next year or the farm is gone. True, some people farm in areas where there are fewer spots on the wheel where you would loose everything, the risk is less. However the risk is still there just the same.

[smcgrath76]

This is a pretty interesting thread. I do know some farms that are doing pretty well, however a lot are not. Many of us are overcapitalized, pay too much for inputs, don't hedge our market risk and are generally poor marketers. The upside of this is that there is great room to do better.
We have found in our operation that always asking why we do things the way we do is a good start as long as it is approached with a mind that is open to change based on the facts.
I agree with FS wholeheartedly that there is generally not a lot of interest in accruing business skills among many producers. Most of us were raised in a situation where hard physical labour was regarded as very important and was praised. In the past this labour was what made farms go.
I think that today, farms are a knowledge based business, much like any other. The individuals who have the best information and learn how to use it are most likely to succeed.
As much as we all need cash, I don't believe the government can help producers who just want a cash payout. I think the track of investing in education for producers who want it is an important step, even though cash is still nice. I know I have/am investing large sums in education on a regular basis, including business education, and it makes a great deal of difference to our farm business.
As I have said in previous posts to FS, I don't believe you have to farm full time to be a serious farmer, I do believe you have to be profit motivated. I know persons with in excess of 1000 cows that are not profit motivated and I know persons with 30 cows that are. They run very different businesses.
One other interesting point that may be the only one I retained from E-Myth was in regards to cost cutting as it relates to Horse' comments. It said to look at your greatest cost and ask the question, what would happen if I just didn't do that anymore? This concept has dramatically changed our farm business as well and is driving things like our winter feeding cost to new lows for us.
I think there is great tragedy in agriculture at present, however in the midst of that there is also great hope, but I am also certain that the same thinking that got us into this mess sure as heck isn't going to get us out.

[skhadenuf]

The reality of governments is that they do have the power to influence which industries which business sectors etc. will be able to prosper. I am not suggesting that we just recieve handouts to keep afloat continually. But for example I buy crop insurance, we have had 4 out of 5 crop losses, the crop insurance coverages designed by government department of agriculture is designed so that if you loose crops to disaster in multiple years you end up with no coverage when you need it most. That is a decision made by government leaders to do things that way. I have a degree in agriculture, but don't need it to figure out that in disaster situations when your fixed costs of operation aren't even met by your only method of insurance something is wrong and that is one of the main reasons why all of the auctions are happenning. Government actions do dictate what level of probability there is for people within any industry to survive obviously they are and have failed miserably. That argument of poor management was an old government cruch just to shrug off their own inept handling of the agricultural sector and the uninformed media buy into it all the time because it's the easy way to report the situation. The question is, does our government keep farm families going with cash injections until a relatively solid program can be put in place? The problem is no government or opposition is legitimately working on developing a solid program because if they did they would need multiple times the amount of money to be put into it. Therefore they keep trying to buy farm votes every election with amounts of money that are a pittance compared to money spent in other sectors of our economy, in what is a mind boggling successful attempt at fooling everyone including most of us farmers into thinking they actually want to improve things when they don't because other lobby groups oil sector, unions etc use their clout more than we do. We as farmers just don't want to get together and be the force we can be in order to have the influence we need.

[smcgrath76]

I don't disagree with this assessment.
I don't think the ad hoc cash injections do a lot of good. A solid farm program would be a great development, and I suspect a cheaper option in the long run.

[Horse]

Crop insurance is mabey OK if you are just a grain grower but if you also run cows you are charged the same rate for salvage as if you were to harvest a good crop, if you pay 10% peemiums you have lost every 10th crop anyway, I still say hedging is no safer than cash marketing as a neibour hedged 400 yrlings at 88$ a few yr ago because he felt he would still make a buck, and then watched them go through the ring for 1.08.
In the hedge market 15% make money 85%lose.
Just read in the grain news that 5% as a return on comodies such as grain it would take 1mill worth to make 50thousand and a good operator would make 8%, do you feel you should have to be that large to make that kind of money I will bet other industrys are doing a lot better.

[skhadenuf]

Good points Horse, In regards to crop insurance my situation and many others after many crop losses through disaster money is tight and banks etc demand that you have crop insurance in order to keep operating loans etc. going, it is quite ironic though as you say, you give away 1 in 10 crops right off the top to premiums and in the end after years of loss the coverage isn't worth the paper written on but yet banks insist you keep it.

[carebear300]

was told today, by a exceptionally smart number cruncher, that we have to keep our costs down. That is quite a statement for someone to come out with after his six years of university. But being the contankerous old so and so that I am I left him with some new bits of information to stimulate his brain cells( by the way he happens to be a NDP civil servant as well) It just so happens that in 1973 when I started farming the inital price for wheat that fall was $l.28 per bushel and the minimum wage was $l.25 per hour in saskatchewan. Now that minimum wage was increased to close to eight dollars per hour and we all know what the initial price was last fall. For us to have some chance at parity with the rest of society the inital price per bushel would have to be eight dollars per bushel, and that would just bring us up to the level of the minimum wage earner in this society. Food for thought for the efficency experts or just the ravings of an old lunatic, take it for what it is worth.

[smcgrath76]

I think keeping costs down is kind of stating the obvious, it is also a complete commodity based mindset. The guy with the lowest cost wins, last man standing kind of approach.
We don't often think about adding value, even if that means growing different varieties of the same commodity.
I think in terms of hedging crops, the thought needs to concern locking in profit due to market unpredictability, not lost profit because the cash market may surpass the futures. By hedging you are trading upside potential to manage downside risk.
I think often farmers in the trenches may struggle to maintain balance and keep a good external perspective on their operations and agriculture in general. This may be the hidden strength of non full time farmers, although I certainly think FS is on to something with the hobby/not for profit farm model.

[farmers_son]

This is a very interesting thread.

Regarding losing the farm to the bank or bankruptcy I do not think traditional cost cutting will make enough difference to dramatically affect that. In other words I doubt that most people’s production costs are so out of line that it would cause a failure. Reduced profitability yes, but not failure. Since failures do happen then it would seem that there must be other reasons.

There is only one way to go bankrupt or lose the farm to the bank and that is through having more debt than you have debt repayment capacity. Debt can be a wonderful tool to grow the farm but it a double edged sword if you cannot make those payments. I think production is important but a very significant factor in a farms success is making wise investments. For many of us investments are financed through debt. If you have debt you have to know your debt repayment capacity and you have to protect your debt repayment capacity because you need to repay debt every year.

On the topic of making investments and crop insurance…..Any investment involves risk and reward. I am not talking about how the investment is financed, through equity or external financing; investments are inherently risky. The investment’s projected cash flows may not happen. The quality of the investment is determined by the amount of risk versus the reward. Therefore there are two ways to improve the quality of the investment, either increase the reward (perhaps through cost cutting but I think many of us “leave money on the table”) or reduce the risk. If you think of investments in term of risk versus reward then you can see how you could dramatically increase the quality of that investment by buying $6 an acre crop insurance thereby reducing the risk from total risk to almost zero.

SmMcgrath76: Thought provoking comments. I agree whole heartedly with your post but the one thing that thing that stood out for me was what would happen if we just eliminated that one cost. No doubt the results could be dramatic.

What if we redefined costs to include costs that do not show up on an income statement?

It could be that your number one cost is the cost of being away from the farm doing the off farm job. There has to be a cost associated with that but as it is difficult to quantify so it is often ignored.

I have heard lots of talk about opportunity cost, referring to the cost of money. But what if we redefined opportunity cost to be the cost of lost opportunities to increase farm income. Or if we had a line on our expense side showing the cost to the farm when the grain in the bin fell from $3.50 a bushel to $1.85? Or the cost of a lost crop or production disaster?

I think our focus on the expense sheet that we fill out at income tax time has blinded us to some larger costs on our farm that are not deductible but have the potential to seriously affect our profitability and ability to roll the wheel again next year. Those are the costs we need to eliminate.

[smcgrath76]

I agree with that FS. One very good question we have learned is "Why?". Ask yourself that 5 times in succession for any problem and you usually have a pretty good solution when you are done.
I think the most useful lesson I have learned about cost cutting relates to this question. Look at your biggest expense (fuel, feed, cow depreciation, time) and ask yourself, "what would happen if I just stopped doing that?" Some expenses are non-negotiable, but it is pretty amazing what turns up as relatively needless cost.
As for adding value, I know a couple of good examples where producers have quit their winter job to stay home and market their crop and made just as much money as working away, with a way better lifestyle.
I think there needs to be some economies of scale, but I also think we overlook opportunity every day.