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I have been reading the comments on beans and decided I had to respond.
It seems that nobody has any idea of how a farm operates. This is not
too surprising as everyone knows that food comes from the grocery store.
You ask why do we plant beans if we can't make a profit. We basically
have a choice in the midwest to plant wheat, corn, or soybeans. Our
choice is to decide how many acres of each to plant based on cost to
plant, crop rotation, and price outlook. I do not plant wheat because
our soil and climate favors corn and beans. There is basically no
choice to plant or not to plant. It has to be planted or you are
broke. We have fixed costs that have to be paid such as land,
machinery, and taxes. Most of us also have the bad habit of eating and
also like to heat our houses and wear clothes. NO PLANT = NO INCOME or
hope of any. If we plant we have a chance of making money but if we
don't, we are broke. Simple as that. A lot of us will make money with a
little luck in order to get a good crop, some prudent (and lucky)
marketing, and most important, our foreign competitors and also our
friends and neighbors have a poor crop. Kind of like futures trading,
someone has to pay the bill.
You question our government payments. We do also. A new program was
developed a couple years ago and no one knew how it would work until
prices crashed. (for your information, farm programs are called food
security programs by the government, basically meaning plenty of cheap
food) We have what is called a marketing loan which means there is no
floor under prices. They will keep going down to market clearing prices
wherever they are. Our government needs large ag exports as they are
the only hope of balancing our trade deficit. They said we will sell
below our competitors price. Guess what. Our competitors lowered their
price too and also devalued their currency to boot. Most countries try
to support farm income in some way and most of them much higher than
us. The price supports in Europe are ridiculous but coming down. They
have large supports to guarantee food supplies as they have gone hungry
because of poor crops and wars. Something we in our bountiful country
have never endured and hopefully never will have to. The government
costs of this farm program are going to be very large because of the way
it was set up to promote cheaper exports. They had no idea it would get
this cheap. Please don't blame the farmer for this expense. We are not
getting rich off it and in fact losing much money on it.
Now to answer the complaint of farmers not hedging. Many of us do
hedge. It is not as easy as you might think. First we have to have a
profitable price. This is crop size divided by expense. Then we have
to balance that against the size of crop we anticipate harvesting. This
is much more difficult than the academians who have never tried it would
like you to believe. If the weather is favorable you should have sold
more earlier before the price went down. If the weather is not and you
have a short crop and you sold too much you are in great trouble. You
don't have enough crop to cover your hedge and also your production cost
is much higher with less bushels to spread it across. Try selling corn
at 2.50 planning on 150 bushels and ending up with 25 bushels and
futures at 4.00. You are broke. Even if you have a good crop and the
price goes up to 4.00 (1996) in many cases the banks shut off funding
for margin calls at the top. You are screwed by doing what the
"experts" including brokers, bankers, and politicians say you should to
be prudent and efficient farmers. Funny thing they are mysteriously
quiet for a while afterwards. If you can tell me what kind of weather I
will have, I can tell you what kind of yield I will have. If I know the
yield of my corn and beans this fall I could do an excellent job of
hedging. Therefore if anyone out there, especially the person who
TEACHES at universities as he knows everything about risk insurance, can
tell me what my growing season will be like I will do an excellent job
of selling my crop. Without knowing yield, hedging is not much
different than speculating. The only difference is you can only sell
the crop once. If you are wrong you are very wrong. How would you like
to have the opportunity to make one trade each year and have live with
it for two to twelve months, right or wrong. How good of an analyst are
you?
Things will get better again out here as they always have. If I didn't
think that I would have quit years ago. That is why I will plant corn
and beans this spring and next. I will not buy any machinery (don't buy
John Deere stock) and will cut expenses where I can without giving up
efficiency. The main thing is to make enough money in the good years
and keep it to carry through the bad. Farming is cyclical and always
has been. Unfortunately many farmers have had poor crops through no
fault of their own. I had 160 acres of beans and 200 acres of corn
completely hailed out last year. Sure cut down expense of combining.
Some of these farmers are bankrupt and out of business because of this.
This has nothing to do with being efficient or hedging but just luck.
If anyone wants more specifics on our get rich quick food security
program I will try to answer your questions, but please don't complain
about something you know nothing about unless of course you just got
done eating, then you don't have to think about food.
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