Scythe & Spade Blog

Future Forecasts and Commodity Market Prices

by Patina Thompson

The end of summer marks the beginning of intense speculation and commodity market price tracking focusing on what futures prices will do for Fall planted crops. Farmers and other buyers of commodities use the futures to hedge against the uncertainty and risk associated with fluctuations in the price of the commodity they are selling.

In futures markets, participants buy and sell futures for a number of commodities. The futures contract is a specific price and specific date (sometime in the future) for a given commodity. A farmer may want to purchase a futures contract when they anticipate the price for a given commodity to be increasing in the future. A farmer may also want to purchase a futures contract because they need to sell goods in the future and they want to be able to count on selling those goods at a specific price (determined now).

The current (active) crops that are involved in the futures market for Fall are wheat, barley and canola. September 15th, 2011 marked the start of what the Risk Management Agency (RMA) and Insurance companies call the Discovery Period. The Discovery period is a 30-day tracking of futures prices on various markets including the Chicago Board of Trade (CBOT) and Kansas City Board of Trade (KCBT).

At the end of the Discovery Period, the RMA issues an Approved Price for active crops and this price is used by farmers and agents to determine what plans and levels of insurance they elect for the upcoming crop year. October 15, 2011 is the estimated date that the RMA will release approved prices for wheat and barley for the 2012 crop year.

Factor all these together and a farmer has many decisions to make. Not only costs associated with prepping, planting, irrigating and harvesting the crop, but also the price now, the price you may receive in the future, and how much you’re willing to risk that those changes may or may not occur. Throw in Mother Nature and fluctuations in the cost of diesel fuel and you’ve created a perfect storm.

As always, Scythe & Spade is up for the challenge and ready to help you navigate through these factors to help make 2012 another fruitful year.

P.S. An excellent resource for commodity market price tracking is www.barcharts.com

My Plate is Overflowing

by Chas Bonner

By now, most agriculture related people have seen the replacement for the Food Pyramid---the PLATE. In our opinion, this will turn out to be a tremendous boon for agriculture. The new focus is on healthy eating, with more raw foods, fruits, vegetables and grains, as well as meats and dairy products.

The Food Pyramid never gained much traction despite being introduced in 1992 and revised in 2005. The Pyramid was a product of much lobbying and legislative involvement, all of which added confusion and reduced effectiveness. By contrast, today’s PLATE represents a consensus that America must get healthy, and as a result, all interested parties came to the table. The USDA estimates that 2/3 of Americans are overweight, many obese, and obesity will become the next major medical expense for America. Most research indicates that virtually any diseases, including mental, are exacerbated by excess weight.

The new PLATE also happens to be in line with existing food trends, where more and more consumers are looking for locally grown, organic, sustainable, raw, and whatever other moniker might be applied to clean, simple food.

Virtually all organizations associated with agriculture are welcoming the new PLATE, and it is being introduced with great fanfare. Even First Lady Michelle Obama has made healthy food one of her mantras.

We expect the McDonald’s and Burger Kings of the world may be somewhat concerned, but this should increase the demand for sound food choices, without all the additives. Farmers and ranchers will benefit.

The Importance of Acreage Reporting

by Patina Thompson

By mid-June, you should already have your crop insurance agent contacting you for your acres on your Spring-planted crops. For each insured crop, an acreage report must be submitted and is essential in determining the amount of insurance and the premium charged to the insured.

It is very important to report all acres, insurable and uninsurable, as well as zero-planted crop acres. The information should also be accurate so the insured can avoid penalties for misreporting.

It’s the insured’s responsibility to timely report the following to their agent;

• All acres planted along with the planting date of those acres
• The insured’s share in the crop and name of person(s) crop sharing, if applicable
• Uninsured acres
• Type or variety of crop
• Farming practice, i.e. irrigated, non-irrigated, organic, etc.

After an acreage report is submitted, a printed Schedule of Insurance will follow. Any corrections to the information should be submitted immediately.

For Arizona, the Spring-planted acreage reporting date for cotton and grain sorghum is July 15th. This coincides with the Farm Service Agency’s (FSA) certification deadline – so be sure and cover both bases by submitting accurate information to both. Your agent can easily use the information provided to FSA to confirm the planted acres.

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!

Scythe & Spade Weekly Blog - 12/11/09

by Chas Bonner

Over the past several months, Scythe & Spade has been doing a great deal of research on agriculture, some for clients and some for ourselves. Because of the depth of this research, we thought we would share much of it on our blog.

Topics covered are supply and demand issues, ultra long-term risks and rewards, historical and predicted financial returns, economic and political factors which will influence, management actions to increase productivity, and the short and long-term future (knowing full-well that “He who foresees through a crystal ball must be prepared to eat glass”).

We intend for our blogs to be weekly, although being human we may miss from time to time. We want them to be meaningful, relevant, factual, important, but not boring or time-consuming. Hopefully, you will be looking forward to each.

AND, we don’t want this to be a monologue; we want dialogue. Therefore, your comments will always be welcome, and you may even contribute to subject matter.

Stay tuned!