Wednesday, February 15, 2012

How Debt Can Bite You in the Butt: "Farm income to drop 11.5 percent in 2012-USDA" (DE; MON)

We've had two concerns regarding farm income: 1) a rise in input costs, 2) a decline in realized prices.
With the anticipated record planting and rising gasoline prices they may both hit in the same year. Not good for those folks bidding up Iowa farmland.
Also not good for Deere or Monasnto.shey may
From Cattle Newtwork:
Farm income will drop sharply from 2011's record high as production costs rise by more than $10 billion for the second year in a row, the U.S. Agriculture Department said this week in its first income forecast for this year.

USDA estimated net cash farm income, a measure of solvency, at $96.3 billion, down 11.5 percent from 2011, when it topped $100 billion for the first time. USDA said it was the smallest decline since 2000 for the volatile income figure and that net cash farm income would be far above the 10-year average.

Production costs are forecast to rise by 3.9 percent, or $12.5 billion this year, to a record $333.8 billion. USDA said receipts for crop sales would be on par with 2011....MORE
What Would Sub-$4.00 Corn Do to the Price of Farmland?
 My back-of-the-envelope calculation says that every arms-length purchase since 2008 would be underwater.

Farmland is worth it's discounted cashflow. Period.
It may sell for more but at some point it returns to trend. It can correct either in price or in time. 
Betting the Farm: Debt Brings Risk of Losing it All

The risk for farmers is the same as that faced by the U.S. government.

It's not the debt per se, it is the cost of servicing it. Low interest rates seduce borrowers into taking on more debt than they should because the current interest cost is manageable. Should rates increase the proportion of cash flow that must go to debt service can crowd out any other use. ...
And many more, use the search blog box, keyword farmland.