Del.icio.us  Digg  facebook  MySpace  Twitter  Google  Bookmark Me  LinkedIn  StumbleUpon  Permalink

Twenty More 'What if' Questions

What if…
… the CFTC imposes new position limits on funds?
Probability: 75%
Political pressure makes it all but certain the government will at least give the impression of limiting speculation. But the impact is uncertain. If fund investment falls to levels from early in the decade, it could mean $2 corn, $6 soybeans and $3.50 wheat. That's not likely. Most speculative hedge funds aren't anywhere near current limits. And, pensions and other institutional investors might choose to invest directly in futures, rather than use index funds that are subject to new limits. That could keep most in the market.

… new EPA rules require farmers to have permits for pesticide applications?
Probability: 90%
This summer the Sixth Circuit Court denied an agriculture coalition request for rehearing of a decision concluding pesticide discharge is a point source of pollution subject to additional regulation and permitting under the Clean Water Act (CWA). The impact of the January decision, made in the case of National Cotton Council of America v U.S. Environmental Protection Agency, is that EPA will almost certainly require producers to obtain National Pollutant Discharge Elimination System (NPDES) permits or some other type of permits for each and every pesticide application, even if applied within label requirements. Tyler Wegmeyer, director of congressional relations at the American Farm Bureau Federation (AFBF), says Ag groups are working with the EPA to devise a general permitting system which would be the least burdensome for producers. The court granted a stay which allows for two years before the permits will be required.

…Law makers continue to do nothing to trim deficit spending?
Probability: 80%
President George W. Bush left office with record deficits, but this Congress, in just eight months, has tripled that amount. Should you worry? Yes, but only to a point. Economists agree it's necessary to spend money to jump start this economy; the real question is if the deficit spending continues after the recovery begins. "When I see the President pull his economic team together, sitting to his right is America's number one economist Paul Volker, and he's telling the president that the minute we see this (economy) turning you gotta close the trap door," says Economist Barry Flinchbaugh. "Don't pay any attention to these economists who make predictions for 10 years from now. In this economy, predicting anything six months out is difficult."

… land prices drop 10%?
Probability: 40%
Land prices have already set back around 5%, so a 10% drop isn't unlikely. And it probably wouldn't have a huge impact on producers, since most have bought land over time, averaging its costs. Balance sheets are likely to weaken further in 2010, but still look strong, unless commodity prices collapse. Fears of inflation and investor demand should support land prices otherwise.

… economic growth tops 3% for the fourth quarter of 2009?
Probability: 40%
Pent up demand as businesses rebuild inventories could lead to a good end to the year, especially if emerging markets like China and India fuel global growth. But any rebound after that is likely to be slow, with inflation becoming more of a concern, forcing the Federal Reserve to raise interest rates, curbing growth prospects.

…my banker won't extend my credit line?
Probability: 15%
Agriculture has weathered the recessionary storm well; debt/asset ratios and balance sheets (outside of livestock) are in good shape. However, 2010 crop prices are unlikely to repeat the glory days of the past three years. Find out why you won't get the extended credit and if there's anything you can do differently. Lenders may simply need more evidence of your ability to repay. If your banker won't extend your credit line, try another bank, farm credit services or seek an outside investor/partner for your business. Before you do, consider hiring a consultant to help improve presentation of your financial position to lenders.

…the Euro becomes the safe haven currency of choice?
Probability: 30%
A switch to the Euro would pressure the dollar while strengthening inflationary pressures in the U.S. markets, causing an increase in grain and energy prices as investors convert cash to hard assets. Such a move would make U.S. grains more competitive into European markets, as well as help U.S. wheat compete with Europe on the global market. However, the Euro is not yet structured to fill such a role, making such a move unlikely any time soon.

…the Senate puts off climate change regulation until next year?
Probability: 50%
That would be good news, because it would give researchers more time to study a controversial rule put in place by the EPA called indirect land use changes. The theory is that when corn goes into an ethanol plant, it causes lower supplies and higher world prices, which then provokes farmers in other parts of the world to clear more forest to plant crops, thus emitting more greenhouse gases. A longer time frame would allow researchers to further clarify and discredit this theory, which could penalize long-term growth of U.S. biofuels.

…Inflation accelerates?
Probability: 60%
Strong inflationary pressures would create another race between crop prices and input costs, resulting in tight margins and increased risk of either seeing high rewards or large losses of income, depending on yields. Congressional fiscal policy and the ability of the Federal Reserve to manage the recovery will be the primary drivers. If inflation accelerates you'll want to step up the buying pace of fixed assets that will appreciate with inflation.

…domestic meat demand does not improve?
Probability: 35%
Consumers prefer meat as their economic outlook improves. However, this recovery looks to be slow, suggesting that demand improvement will be gradual. Livestock margins are in the red, resulting in a sharp reduction in herd size. This supply destruction will likely result in shortages once the economy becomes healthy again, resulting in sharply higher prices for those able to survive the next couple of years. How long can you hold out?

…another 9-11 type act of terrorism happens again on U.S. soil?
Probability: 5% or less
While government and other institutions have prepared for the last eight years to undermine the terrorist threat, there is plenty of evidence to suggest there are groups out there who want to attack our nation again. The 9-11 attack was highly visual with short term harm to the U.S. transportation and financial sector; it did more damage to our national psyche than anything else. How disruptive another attack might be depends on the style of attack. "A dirty nuclear bomb or the introduction of some virus to the human population, or something that causes a major disruption in the food supply would have more long term repercussions," notes Chad Hart, Iowa State Ag Economist. "But we have more systems in place now to prepare the country for the possibility of such an attack, and our response in dealing with the aftermath of an attack. We are better now at being able to track how funds, people and hazardous materials can move throughout the country."

… my landlord wouldn't sign on to ACRE?
Probability: 85%
Farmers shunned the new farm program due to its complexity. Which is too bad, because the new system provides another layer of downside protection. Look for changes to the program and watch price forecasts for 2009 crops to keep up with potential participation.

…Brazil's currency continues to rally?
Probability: 60%
A strong real (Brazilian currency) tightens soybean profit margins in Brazil, putting greater pressure on Brazil's federal budget to finance farmers for the purpose of maintaining production. That would likely limit soybean expansion, requiring the market to maintain a high enough price to keep soybeans competitive with corn in the U.S. Midwest.

…the Chinese and others choose to stop financing our deficit spending?
Probability: less than 5%
China Stock Digest's Jim Trippon says the usual answer is that China would trigger a collapse of the U.S. dollar by dumping its holdings. Such a move would effectively destroy the debt-ridden economy of China's best customer, the United States. True enough. But now China has more at stake. "Unable to dislodge the dollar as the world standard, China has only one other choice," says Trippon. "It must continue to support the value of the dollar in order to keep the Yuan (China's currency) relatively cheap. That's why China continues to buy more U.S. Treasury notes (albeit short-term as much as possible). In this time of crisis, Beijing's dollar-denominated holdings support the greenback--not to avoid crushing the U. S. economy--but to prevent the value of the dollar from sliding and the Yuan from rising."

… Asian rust damages U.S. soybeans?
Probability: 10%
Dry weather and lack of hurricanes limited spread of soybean rust in 2008, and emergence of the disease in 2009 also was slow. Development of El Nino conditions further hampered hurricane formation this summer. While a late-planted soybean crop might extend the window for damage from rust, any impact appears to be manageable. Growers in Brazil are bringing the disease under control, and U.S. farmers may benefit from that experience.

…trade protectionism intensifies?
Probability: 50%
The answer depends on how confident you are that the recession is behind us. As the economy improves, pressure for trade protectionism recedes. "In a recession governments want to protect local economies but when you're not under economic pressure you tend to let the market play out," says Iowa State's Chad Hart. The U.S. represents two-thirds of all global trade in corn. Wheat and soybeans are also major exports. "If we start protecting things in our country, other countries will look to inflict damage on us," says Hart. "Typically you target highest value items moving between countries. Ag often gets caught in trade disputes on other products because Ag is one of our main exports and it's an easy one to target."

…EPA responds to vegetable growers and gets tough on herbicide drift?
Probability: 80%
Since 2001 the EPA has promised to put out spray drift guidance, and now that the Sixth Court has ruled against a rehearing in the pesticide drift, a rule is expected anytime. Environmentalists have been lobbying for EPA to require a zero drift policy. Agricultural groups have been working with EPA to come up with different standards that help get closer to the "unattainable goal" of zero drift. AFBF's Wegmeyer says he expects the requirements to be more severe and restrictive on when you can and cannot spray. There would be a comment period on any regulation, but "the way the wind is blowing, it looks as though it will end up being more constraining for farmers," he says.

…I begin to run out of cash, equity and borrowing power before hog or dairy prices recover?
Probability: 15%
Based on futures prices right now, black ink won't return to hog and dairy balance sheets until next summer. That's another year of lost equity in a sector that is already bleeding red ink. If you entered the business in 2006 you're in worse financial shape than those who may have socked away profits from earlier years. Our best advice: Liquidate non-productive assets to raise cash, seek an outside investor or partner to raise capital. If all else fails, liquidate the business.

…my machinery dealer goes under and I've already put $100,000 down on a combine?
Probability: 5% or less
See your attorney, and right now. Legal experts tell us if the equipment has not been delivered, you could be nothing more than an unsecured creditor in a bankruptcy, and that's never a good situation. It would be very helpful if you had signed some kind of document with the manufacturer first; then, if the combine has been built at the manufacturer and can clearly be identified as the one you have ordered, your situation is better. You might legally be able to make an argument that this was going to be your combine. The more detailed paper trail you have, the better off you will be.

And finally…

…The Cardinals win the World Series?
Probability: 40%
Yes they're on a roll right now, but a lot can happen between now and October. In any case, it will be one more reason for the loyal but dejected Cub fan to switch the station to watch 'Da Bears.'