Most farmers are gamblers at heart. They risk everything when they plant their crops in the spring in the hope they will be rewarded at harvest.
But growers should not “bet the farm” when they sign up for the Agricultural Act of 2014, says Greg Cole, president and chief executive officer at AgHeritage Farm Credit Services, which is based in Little Rock, Ark.
“Don’t look for a silver bullet in this farm bill because it’s not there,” said Cole, who was one of the speakers for a panel discussion on “The 2014 Farm Bill: What You Need to Know” at the USA Rice Outlook Conference in Little Rock.
“Here’s the key thing in making your selection,” said Cole, referring to the complex options available under the new law. “Try to look at it from a more global basis in terms of what can you live with and what can you not. Here’s the most important thing you can walk away with: Don’t bet your farm on this farm bill safety net to make your decision.”
Cole, who also spoke at the annual Rice Outlook Conference following the passage of the 2008 farm bill, said he believes this farm bill is much more complex and less forgiving when producers make a mistake in signing up for the programs.
“I said this many times when we journeyed through the farm bill debate and I attended many meetings representing Farm Credit: The curtailment or elimination of direct payments will affect the rice industry of eastern Arkansas and the Mississippi Delta more than anywhere else,” he said.
“Obviously, you as a producer liked the direct payments and we as ag lenders liked it, too, because you knew how much you were going to get, when you were going to get it and it was timed to be in cycle with that crop. Now the world has changed. We’re dealing with a lower safety net, a radically different structure having more of an insurance counter-cyclical feature and a shallow loss concept.”
There’s no doubt the provisions of the Agricultural Act of 2014 are more complex than previous farm bills. Cole and panelists Dr. Joe Outlaw, co-director of the Agricultural and Food Policy Center at Texas A&M University, and William Cole, a crop insurance agent from Batesville, Miss., who chairs the Crop Insurance Professionals Association, encouraged farmers to seek help in making their decisions.
“You have to live with the decision for the life of the farm bill though the pricing environment will change over that time, and you’re making year-to-year crop loans,” said Greg Cole. “These payments will be hard to quantify, they’re paid in arrears or after the fact and will actually be paid when you’re almost ending the next crop.”
Because of the complexity, he said, ag lenders will need to evaluate credit requests on a more individual basis and look at many aspects to determine the borrower’s risk-bearing ability, Cole noted.
“Consideration will need to be given to the safety net selection in concert with the crop insurance selection and the overall marketing plan and all this has to be interfaced in with the provider’s lending capacity. No doubt the complexity will increase for the borrower and for the ag lender.”
In the days ahead, the key to success may well be making the best uses of the resources available and making the best decisions, he noted. “There’s good decision tools like Joe (Outlaw) alluded to, the online tools that are available, the interface with crop insurance agents, peer groups and other key folks.
Cole urged farmers not to risk everything on the safety net in the new law. “Don’t allow the government to keep you in business for this is only one component of a whole menu of risk management tools that you have in your operation and your overall management equation.
“You as agricultural producers are owners of your business, you’re CEOs. You have full responsibility and accountability. And as I talked about the migration of the intellectual business model, your success will be directly tied to the people you surround yourself with to either influence your decision or make the decision.”
Those can be people like your accountant, your agronomist, your tax consultant, your FSA representative, your ag lender. “Again, the goal is to build the intellectual capital to generate the financial capital,” said Cole.
If they don’t already have the information, Cole urged growers to determine their cost of production, both variable and fixed and on a per-acre or per-bushel or pound basis.
“My observation is that many producers are not strong in that area,” he said. “You need to look at your total cost structure. Are you growing paychecks and payments greater than acres? Do you have a focused scale for your operation?”
Cole said his organization is already reviewing loans for 2015 and finding that some growers are losing money, some are breaking even and some are making a little money following the general downturn in prices of recent months.
“I asked what’s the difference there?” he said. “It’s in that fixed cost, and looking at the total amount of payments that you’ve got, your living costs and those variables. Knowing your numbers is going to be critical.”
What can it do for you?
“Each producer has to step back and ask ‘what do you want this farm bill to do for you?’” said Outlaw. “For many years our producers have used the direct payments because they were steady, and you knew what was going to happen. People were using those as a gigantic crutch.
“That’s just me being me. If I made you mad, I’m sorry. But the reality is we’ve got to decide what we’re going to use in this farm bill. A lot of producers are saying I’m going to take whatever I can get the most money for the fastest because that’s the way I feel about this, and I don’t know if we’re going to get anything else.
“Others are saying I need to know that if things get to a certain level of bad prices I’m going to have that safety net provided by the government. Each person has to step back and make that decision for themselves.”
Outlaw noted that farmers can enter a wide range of prices in the new farm bill decision aid tool developed by the Agricultural and Food Policy Center at Texas A&M. “I’m suggesting that people put in the prices that if they happen, farmers don’t want to have to go see their lender if this happens. Those are the prices I want to analyze not high prices that don’t matter because you’re not going to get anything.”
For more information and to see the new decision aid, visit www.usda.gov/farmbill.