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The debt crisis out on the farm - Roy Smith

08/05/2011 @ 1:19pm

Here we are already in August. Unless you irrigate you should be ready to relax a bit and enjoy being a farmer. It seems as if it does not work that way most years. Something always comes up to generate anxiety. This year is no exception.

Having cropping problems and marketing issues to deal with is enough of a concern. Here in Cass County, Nebraska we missed the rain that was promised yesterday. Soybeans and corn are showing stress after five weeks with less than an inch of precipitation. The limit up move in the corn market on Tuesday had the appearance of the beginning of a major weather scare. Unfortunately, there was little follow through on Wednesday. Then along came Thursday and all eyes and most trading focus was on the stock market.

With the Dow Jones average down 513 points a lot is being said about the worst day in stock trading since the wash out in 2008. I am not an economist. My last course in economics was in 1959. Being a grain commentator does not require any specific type of training in economics or business. However, I have been practicing economics at the farm level for 43 years. That is an excuse for me to comment on the current economic conditions.

Most of what I heard following the closing markets on Thursday dealt with unemployment, failure to recover from the housing crisis, credit problems in Europe and other macro economic factors.  My layman’s opinion is that the wash out in the stock and commodity markets can be attributed to the government’s raising of the debt ceiling earlier in the week. Most of the people I talk to understand that the government could not default on its financial obligations. The negative feeling comes from how and when it happened.

Farmers understand what it means to borrow money more than most members of society. We make out a budget, put together a balance sheet and go to the bank. The loan officer looks over our plan, makes some suggestions or demands, and then decides whether or not to make the loan. In most cases we follow the plan and make payments on the loan when they are due. Occasionally funds fall short and contingency plans have to be followed to correct the situation. On rare occasions there is no way to make up the shortfall other than liquidate assets through foreclosure. I do not recall an instance where the lender’s solution to the problem was to extend more funds indefinitely. Yet that is the financial condition our country is in.

The public is frustrated. The government does not seem to follow the same rules as private citizens and businesses do. First of all, there doesn’t seem to be a budget that must be followed before funding is extended. The government publishes a budget, but the bottom line always seems to end up in the red. There are no individuals, like our friendly loan officers, who require the borrower to go back and make the plans workable.

Secondly it seems as if some plans are set up to fail. The direct payment through the FSA Direct and Counter Cyclical Program (DCP) is an example of government spending unnecessary money. When Corn was $2.50 and soybeans were $6.00, the DCP looked like a good program. However, no circuit breaker was implemented to stop the flow of money if grain prices tripled.

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