Scythe & Spade Blog

Blog #18 - 4/30/10

by Chas Bonner

Sustainable Agriculture: Reality or Fiction

Much has been written over the years about sustainability, and it has created more than enough controversy. Rather than argue the merits, we would like to point out the primary arguments of both sides.

Those who deride sustainable agriculture point primarily to the undeveloped world where, in essence, agriculture might be defined as “sustainable” or even organic in that there are few fertilizers, pesticides, or insecticides used. Yields are also a fraction of those in the developed world. Furthermore, because few commercial chemical amendments are available, any amendments that might be used would be disallowed in the developed world---human “night soil” among others. A good example of this problem is Africa which has become a net importer of food, much of it donated by international aid organizations, despite the fact that Africa has huge tracts of arable ground. With more soil and crop amendments, they might be able to feed themselves.

On the other hand, sustainability has become an operative word in the developed world. First, on the demand side there are more and more consumers who want organically grown food, locally produced food, and as few inputs as possible in their food. Typically, this segment of agriculture has been growing at double digit rates for years.

Second, on the production side, there are increasing mandates addressing sustainability. The EPA is beginning to define greenhouse gases as a pollutant. The SEC has declared that climate risk is material to investors. The EPA is reviewing dying ocean plumes around river estuaries such as the Mississippi and Columbia Rivers. There are numerous agencies reviewing rising levels of nitrous oxides in the air, 78% of which is attributed to decomposing fertilizer.

Finally, research points to a continuing increase in caloric inputs to produce each calorie of output. For instance, 17% of all energy use in America surrounds agriculture, food processing, delivery, and disposal.

At Scythe & Spade, we may worry about the implications and cost of sustainable agriculture, but we also see it as a business “megatrend” which probably cannot be derailed, and has a predictable direction. Therefore, our goal is to learn how to operate, how to stay ahead, and how to prosper within any megatrend.

Blog #17 - 4/23/10

by Chas Bonner

Adaptability vs. Intransigence

In our Blog #15, we discussed attendance at the Northwest Agribusiness Seminar in Stevenson, Washington in late March. It was a very rewarding experience, both from a presenter’s standpoint as well as a listener’s standpoint.

As might be expected in a gathering of farmers and ranchers, there was much antipathy expressed toward government agencies, environmentalists, and anyone with any control over the agricultural community. That is understandable. However, of real interest was one of the large farmers in NE Oregon who has obviously determined “if you can’t fight them, join them.” Or he is very adaptable and able to turn lemons into lemonade.

Rather than complain about government agencies restricting his freedoms, or environmentalists driving his costs, he has become creative.

First, because the deep aquifer under his land had dropped about 300’ in the past 60 years, he dammed up a seasonal stream (with approval of required agencies), and through artificial recharge (AR), spread that water on 15 of acres of laser-leveled land with berms around the boundaries. This recharges the shallow aquifer that he then uses as his source water to do aquifer storage and recovery (ASR) in the deep basalt aquifer for summer time storage. The aquifer has recharged over 50’ in the few years since this was done.

Second, he is now taking 70% of the state’s bio-solids from Portland and surrounding communities’ Sewer Districts (doing a huge service for all communities) and using it as fertilizer to spread on rangeland that is dedicated to animal feed such as hay, or on land used to grow canola for biodiesel. Bio-solids usage has increased the fertility, and at a very reasonable cost.

Finally, during the meetings at the seminar, this farmer had positive comments, not complaints or recitation of problems, but rather suggestion of solutions. He was more than just adaptable; he saw opportunity when others saw problems.

From the standpoint of Scythe & Spade, we appreciated the time with him, not simply because he was so adaptable, but also because it gave us opportunity to renew ties with the Nature Conservancy which is now working with him on possible easements.

Blog #16 - 4/16/10

by Chas Bonner

Go to the Magazine Rack---TODAY!!!

The April issue of National Geographic Magazine, on newsstands today, is a special, single article issue which will be of utmost interest to anyone remotely associated with agriculture. The article is entitled “WATER: OUR THIRSTY WORLD.” Not only is the text of this article mind-boggling, the hundreds of photos enrich and enliven the story.

This blog cannot do the subject justice, but to whet reader’s appetites, some key points will be supplied. We must warn however, these points are seen through one set of eyes; your eyes may see something different, although doubtful:

• 97% of earth’s water is salt water or salty, unusable to humans and animals.
• Of the 3% fresh water, 69.6% is frozen in polar caps and glaciers, 30.1% in underground aquifers, and a mere 0.3% in rivers, swamps, lakes, and all plant life.
• 70-80% of all fresh water in the US is used in agriculture.
• A large insert in the magazine illustrates water use by category. For instance, at one end of the scale, a pound of beef requires 1857 gallons of water to produce whereas at the low end of the scale, a pound of strawberries requires 33 gallons.
• Many major cities are now rationing water, are sealing delivery systems, raising costs, and installing new technology.
• One-half of the world’s population has no water piped into homes. They must take long hikes to secure water, and most is badly polluted.
• Virtually all rivers in SE Asia (home of 1/3 of the world’s population) originate in the Himalaya Mountains, and glaciers are fast retreating.
• Worldwide population has been increasing by 83 million annually.
• California, a fruit and vegetable oasis for the nation, is fast losing water, not just because of short rainfall, but to EPA laws, and no new dams or irrigation projects.

There are a few positives arising:

• Over 14,000 desalinization projects worldwide are producing about 16 billion gallons annually, with improved technology starting almost daily.
• In countries with highly polluted water, there is a new process of bottling drinking water, storing in sunlight for a day, and the UV light purifies it.
• Pur Filter Co. has developed a new powder that when poured into muddy and polluted water will kill all bacteria, and filter out the sediment.
• New turf grasses can use brackish water, and golfers like it---hardly compelling.

PLEASE DO YOURSELF A FAVOR AND BUY THE MAGAZINE. FASCINATING.

Remember Mark Twain: “Whiskey’s for drinkin’; water’s for fightin’ over.”

Risk Management Agency:

by Patina Thompson

Standard Reinsurance Agreement Changes

It’s no surprise that the key term during the last year has been “recession”. Every newscast you hear mentions it, every Washing press conference dabbles in it, but while Washington is looking for ways to spend billions of dollars to create jobs and jump-start the economy, there is also a plan to cut millions of dollars in crop insurance that threatens the livelihood of rural Americans.

In communities across the nation, crop insurance provides jobs for thousands of men and women who sell and service the policies as well as the adjusters that work the claims. For the substantial losses farmers and livestock producers are faced with year-to-year, crop insurance provides valuable and affordable coverage in all regions.

The Federal Crop Insurance (Multi-Peril Crop Insurance Program or MPCI), is a public-private partnership between the United States Department of Agriculture’s (USDA) Federal Crop Insurance Corporation (FCIC) and private sector insurance companies, also known as Approved Insurance Providers (AIP’s).

The FCIC and AIP’s have a business relationship that is contractually defined by the terms of the Standard Reinsurance Agreement (SRA). According to the SRA, each year private insurance companies and their agents provide coverage to nearly 270 million acres and more than 100 different crops across the nation. On December 4, 2009, the draft SRA proposed funding cuts for delivery of insurance to farmers by roughly one-third. The administration also proposes deep cuts to the underwriting gains an insurance company can make in good years. The change would cut at least $4 billion out of crop insurance over the next five years.

A revised draft, released February 17, 2010 incorporated some changes that the crop insurance industry pushed. An open letter to USDA and members of Congress tried to balance the initial draft with comments and opinions from members across the nation. Regardless of which changes go through, they will no-doubt be debilitating to the future of crop insurance. Many section’s of the 2008 Farm Bill, which took a $6 billion cut to crop insurance, have yet to take effect.

It’s a shame that the agricultural industry continues to take a financial hit and that the money will not say in the rural communities that it was designed to serve.

Sources: Zeug, DeVonna, “Prevent gutting of crop insurance”, published Wednesday, January 6, 2010 in Omaha World Herald.

See the full report online at www.rma.usda.gov/news/2009/09/milliman.html. See additional information about RMA's proposals for the new SRA at http://www.rma.usda.gov/news/2009/12/sra.html.

FSA PAYMENT RULES

by Monte Nevitt

Actively Engaged Status and Management

Payment Limitation rules dictate that in order for a partner to be considered actively engaged, he she or it must provide its commensurate share of management inputs. Specifically – management must be significant, independent, and measureable. Depending upon how a farming operation is conducted, active personal labor may or may not be needed. (Often times labor functions are hired). Management, however, is always critical that it be provided by the first level members and in their proportionate share in which they pull profits or losses from the partnership.

What does significant mean? It must be critical to the profitability of the farming operation. If a partner has responsibility for the scheduling of irrigation – we know that the amount and timing of irrigation is critical to yield and profitability – we then double check only that this duty is commensurate with another partners responsibility for tillage operations or marketing of crops, etc..

Independent. This means that each partner must step up and provide their own contribution of a needed input, independent of any other partner. Ultimately – this means that no one or two individuals should be in the background providing all critical management. If this is the case, the FSA County Committee is charged with the responsibility of denying payment to any individual who fails to meet commensurate share rules (freeloaders who are not pulling their weight in the partnership).

Measurability? Finally – recent rule changes require that these management inputs be measureable. Is there a paper trail that documents that partner A provided his inputs of management over the irrigation. Is there a billing from the irrigation district that bears his name? Is there a set of minutes that reflects a report from this individual for that given area.

All things considered – if the partnership is truly run as a joint operation which not only allows for -- but calls for input from each member – and further leaves a paper trail that the County Committee can review come time for the year end review or audit, you will save yourself a lot of grief. (This allows the committee to focus on your capital, land, equipment, cash rent tenant rules and other items of equal importance)!

Give us a call if you have concerns about the approach you are employing or if you feel a need to clean anything up so that it passes muster!