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

[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.

[cakadu]

Good points all. I believe it is more than keeping costs down, it is a matter of understanding what one's costs truly are. Too often we don't realize the true costs of production.

The other thing to bear in mind is that you cannot borrow your way out of trouble. Borrowing is definitely a fine line to walk.

Economies of scale have a diminishing point and it is important to understand when that point is. Instead of economies of scale, we need to move to economies of scope where we can utilize our assets - whether they be equipment, money, land etc. - to the fullest. For example, you grow a crop that needs nitrogen with one that provides nitrogen so that you can have the plants fixing nitrogen for you.

The biggest problem we have is that people do not know the true costs and value of their food. All they want is cheap, quick and safe.

[spudchucker]

I am not try to stir up hard feelings but what happens when a farmer makes more money?
He bids up land rents and prices, buys a new tractor and/or truck, and so on and so forth until he has bid everything away and then has his hand out again looking for more crying about evil corporations and uncaring governments.
In all honesty, why should the farmer be guaranteed a profit as so many believe? Are they a better and more wholesome person then the rest of the world.
I am not saying this about all. I base my experience on watching potato farmers drive by in their big jazzy new John Deere while I was round baling in a cloud of dust in an old cabless tractor then getting home to read in the newspaper that they got another handout due to poor prices.
Does this apply to the west too?
If crop failurs happen fairly regularly, should that fact not be built into business projections?
Having said that, it would be hard to predict BSE coming and plan for it.
Just some rambling thoughts.

[farmers_son]

Yes, it happens in the west too. Only out here sometimes the ones driving the new pickup and the new John Deere tractor can go broke because it was being done with borrowed money.

On the subject of costs and losing the farm and going bankrupt... I think there are costs that affect your profitability and there are costs that will cause the ship to sink. Some time ago I read of a woman business executive who was in charge of a large corporation. Faced with having to make many decisions on many challenges that were coming at her all at once she divided the issues by using the model of a ship at sea in a war situation. Some of the challenges or costs were compared to missiles or bombs that would hit the ship above the water and although would do damage the ship would still sail. Other problems or challenges were torpedoes that would hit the ship below the water line causing the ship to sink. She made sure that whatever could sink the ship were dealt with first and got her full attention.

On a farm we are concerned with weather, fertilizer costs, fuel costs, machinery costs, land costs. However examples of kind of costs that will quickly sink the ship or cause the farm auction include:

Cost of a divorce
Cost of no children willing to take over the farm
Cost of a lost crop
Cost of missed debt payments
Cost of being sued and having to defend yourself in Court (for a variety of reasons, perhaps an environmental spill, driving drunk, operating machinery on the road in an unsafe manner, employees being hurt because of your negligence and so on; none of which would likely be covered by insurance)
Cost of a break up amongst the farming partners
Cost of a change in health or a accident causing injury or death
Cost of a fire destroying your insured property or worse the property of others.

And within limits, there are things we can do to at least reduce or prevent many of those costs. So there is something we can do about it.

[farmers_son]

I meant to say uninsured property and I could have added the cost of increasing interest rates. Of course there are other examples.

[Horse]

Spudchucker I am glad you said that as someone had to say it.
F-S I still disagree with all this insurance, if I dont pay 10% for crop ins and dont borrow more money to put in more acres I am another 7% to the good now I would not try that in a hail belt but I have concidered my options and I believe I can handle a loss as I never have all my eggs in the same basket, I have cows that can harvest some hailed crop or weathered grain I have bought calves when the feed pile is high and low in price,there is nothing wrong with being a free trader, when the compitition knows your buisiness then he has the upper hand.
A neibour told me last month he wished he wouldnt have sold all his barley for $3 now it is $4 Yes he made a little at 3 but the buyer made more and only owned it for a month.
Any way I feel thre is still an oportunity if you are not deep in debt, and dont think you can outsmart the world, all you have to do is win a few more than you lose.

[skhadenuf]

Some very good points, however I think the industry and people left in it at least the ones that have farmed for awhile are quite a bit past the point of looking at what way to cut costs because if you haven't been cutting costs to a minimum likely would have been down the road long ago. As far as a guaranteed income there is some merit to limiting that because things shouldn't be as easy as saying well I tried it didn't work out so give me my money, but at the same time why is a car worth 50-60,000 a house worth 300,000 -500,000 it's because other people in society at different occupations are making huge amounts of money, so why is it wrong for farmers to be in that group. I just cannot understand why it is so alarming to people to worry about a few farmers that may get a little bit too much money so therefore all the rest should get none to justify it. Nobody seems to care that the fertilizer dealers etc are wined and dined in 800 dollar a night hotels complete with maid and butler service while the guys at the lower end are paying for it. Also if you look at other occupations is there any other occupation that is experiencing such a shameful event as the amount of people putting their lifetimes into their farms and now loosing them in droves, not even close. To me the agricultural and rural crisis and the way rural people are being valued in our society for that matter is this country's dark secret is at best shameful. As I said before we are not expecting handouts, just an environment where a fair expectancy of some reasonable return for our risk occurs, and that isn't the case by a long shot now.

[hayburner]

The old saying make your children mad at you "leave" them farm when you pass on.