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Is the Second Farm Crisis Upon Us?

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Re: Is the Second Farm Crisis Upon Us?

#21

Post by knome »

village-idiot wrote: post #14
ewams wrote: post #2

"A gallon of milk costs a farmer approximately $1.90 to produce, but in the last year, farmers have been receiving as little as $1.35 per gallon." If it cost more to make it than they are getting, why are milk prices not higher?

Subsidies distorting the market largely. Farmers continue to use rBST to over produce milk, and the fed pays to destroy some of it to avoid collapsing the market. The situation would sort itself out better if we’d left it the hell alone, but now the pain that correcting this situation will cause is significant

Is this one of those purposeful sorts of policies where the government decided artificially ensuring too much food being produced is better than letting the amount of food produced naturally bounce between too much and too little, preferring the comfort of waste to the possibility of occasional famine?

Re: Is the Second Farm Crisis Upon Us?

#22

Post by NTDF9 »

cheez wrote: post #8

Are farmers not able to use financial instruments to hedge their costs? Simply borrowing money with no hedge seems VERY scary to me. I guess that's just the game?

I'm not aware of these instruments. What are some examples of hedges to farm borrowing so I can look them up?

Re: Is the Second Farm Crisis Upon Us?

#23

Post by chiefalchemist »

I read and read quickly, so perhaps I missed it. But all the examples seem to be farmers of commodities.

If you're producing something that's consistently being over-produced, what do they expect to happen?

Don't get me wrong. Obviously, the food supply is important. It's also difficult (i.e., weather). None the less, running full force into producing a commodity can't be the best option they have. Is it?

Re: Is the Second Farm Crisis Upon Us?

#24

Post by icahnvalyou »

NTDF9 wrote: post #22
cheez wrote: post #8

Are farmers not able to use financial instruments to hedge their costs? Simply borrowing money with no hedge seems VERY scary to me. I guess that's just the game?

I'm not aware of these instruments. What are some examples of hedges to farm borrowing so I can look them up?

All the commodities mentioned in the article have had active futures markets for decades. A farmer will typically sell contracts to deliver their crop as a hedge against the price moving against them during the season. https://en.wikipedia.org/wiki/Futures_contract

Re: Is the Second Farm Crisis Upon Us?

#25

Post by village-idiot »

knome wrote: post #21
village-idiot wrote: post #14

Earlier quoted context omitted.

Subsidies distorting the market largely. Farmers continue to use rBST to over produce milk, and the fed pays to destroy some of it to avoid collapsing the market. The situation would sort itself out better if we’d left it the hell alone, but now the pain that correcting this situation will cause is significant

Is this one of those purposeful sorts of policies where the government decided artificially ensuring too much food being produced is better than letting the amount of food produced naturally bounce between too much and too little, preferring the comfort of waste to the possibility of occasional famine?

Possible, but one could accomplish that without adding rBST into the equation. Letting farmers purposefully jack up production and then paying them to destroy the excess product is just incoherent policy.

Re: Is the Second Farm Crisis Upon Us?

#27

Post by dmckeon »

cheez wrote: post #8

Are farmers not able to use financial instruments to hedge their costs? Simply borrowing money with no hedge seems VERY scary to me. I guess that's just the game?

Those raising corn and (soy)beans are at one end of the grain commodities market, and can hedge against the crops they have raised and stored for future delivery.

This is why TV and radio stations in the breadbasket states air daily crop price reports around sunrise.

Re: Is the Second Farm Crisis Upon Us?

#28

Post by protomyth »

NTDF9 wrote: post #22
cheez wrote: post #8

Are farmers not able to use financial instruments to hedge their costs? Simply borrowing money with no hedge seems VERY scary to me. I guess that's just the game?

I'm not aware of these instruments. What are some examples of hedges to farm borrowing so I can look them up?

Go to any of the major player's sites and they have programs for farmers such as https://www.cargillag.com/ - ProPricing is there marketing name https://www.cargillpropricing.com/

You can do it yourself if you learn hedging. Iowa State has https://www.extension.iastate.edu/agdm/crops/html/a2-60.html and University of Missouri https://extension2.missouri.edu/g602

Re: Is the Second Farm Crisis Upon Us?

#29

Post by downrightmike »

janee wrote: post #26

Other than smaller farms suffering, what would be the dangers of farm consolidation? I was looking for a section in the article that talks about it, but couldn't really find any.

In the last US census less than 1% reported were farmers. Huge change in demographics in 100 years. A lot of that has been made possible by large agribusinesses. The small guys day's have over for a while.

Re: Is the Second Farm Crisis Upon Us?

#30

Post by village-idiot »

NTDF9 wrote: post #22
cheez wrote: post #8

Are farmers not able to use financial instruments to hedge their costs? Simply borrowing money with no hedge seems VERY scary to me. I guess that's just the game?

I'm not aware of these instruments. What are some examples of hedges to farm borrowing so I can look them up?

Most farmers and their direct consumers will buy/sell a portion of their harvest in advance in the form of commodity grain futures. This protects the farmer from dropping prices and their consumer from rising prices. It's one of the reasons why prices don't shift around a ton from winter to summer anymore.

You can also hedge risk against changes in production cost by using instruments that track the difference between raw grains and their immediate products (e.g. Soybean Crush). But that's not really a game the farmer might play.

These systems have their limits, and are really there to protect all parties against sudden shifts caused by external events like drought and international trade. When the trend is long and smooth in one direction there's very little the farmer can do to fix their situation via purely financial means. No baker is going to pre-purchase their wheat at old prices when the market price has been slowly declining for a decade.

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