Basically the the Journal's article is reporting information from the USDA that is guessing farm net income this year will fall 38%. Meanwhile the Chicago Fed in what appears to be a survey of bankers, says farm land values have decreased 3%, though "good" farmland is maintaining it's price. Credit conditions, the "AgLetter" says, had a "marked deterioration". Which basically means farmers are having trouble paying their loans.
No wonder if net income is diving so much.
Looking closer at the stats in the Fed "letter", it appears that "good" farmland has declined materially on a year to year basis. The "maintaining" it's value assertion has to do with the latest quarter.
What's happening?
Well my guess is mainly the price and demand of oil. Oil has gone up significantly in price from it's lows < actually almost doubled >, while the demand has been crumbling. What??? you may well ask. That's sounds like a contradiction. How can this be? Demand down and price up?
Well in Ben Bernanke's Carnival of Dreams anything is and has been possible. Here's what I mean. Ben and the other Fed stooges have thrown a lot of liquidity into the banks that least deserve it. These banks don't want to lend the money out to business's and individuals because no one who wants / needs to borrow is very stable financially. The ones they would like to lend to, people who can afford and repay loans, don't want to borrow in this economy. Which sounds like basic common sense to any bright 6 year old.
It's the classic liquidity trap that existed in the 1930s. Loads of money available, but no one willing to borrow it whom they would be willing to lend it to.
The banks have to do something with this money. So they buy the Treasury bonds that were issued to bail themselves out, and their investment divisions ramp up the stock markets with this same money that usually comes to them indirectly from another bank lending to them , the other bank borrowing from a third bank for their investment division, and the third bank coming back to borrow from the original bank in a round robin. After all Chinese Walls have to at least appear to be maintained. < This is a simplified description. It is really much more convoluted then this. But the basic idea is the same. They're getting the original liquidity received to stimulate the economy from each other, possibly with Central Bank connivance, so they can gamble with it instead of distributing it in loans to boost the general economy >
< Yes I know. It sounds crazy. But remember we're living in Ben's Fantasy World >
What this has to do with some commodity markets like oil, is that the price of these commodities are speculatively bid up regardless of demand by these same banks' investment divisions. In fact the limit of the amount of commodity contracts allowed to be held has been waived for certain favored banks. The purpose of these limits is to prevent manipulation and the rigging of prices. The banks of course will deny they are doing this. I'll let you be the judge of that.
.Within the last month Morning Zhou in Marketwatch.com had an excellent and well researched article about the collapse in the demand for oil. It's a devastating analysis if you're in the oil business.
The only reason oil prices are going up is because of speculation. Oil is a significant component of farmers production costs. If the cost of oil goes up, their costs to grow and bring food to market go up dramatically.
Meanwhile with the fall in demand for oil and it's products, the demand for certain agriculture, particularly corn, falls significantly. How so? Well certain ag prices like corn and sugar have had a significant portion of their recent increase in demand < the last few years > due to increases in the production of ethanol and other energy products used in the oil market. Reduce this production, and a significant portion of demand for these agricultural items disappears and prices fall. Just at the time when farmers had increased their planting of these particular products. < Farmers have to plan at a minimum of at least one year in advance. > What you may ask caused this serge in ethanol use for energy. What else but Federal government programs and, as I recall, mandates.
In other words the farmers prices to produce have gone up and the demand / price of the product they sell goes down. A classic squeeze. This also happened in the 1920s and 1930s with tragic results for many souls of the soil. The reasons in the 20s and 30s being due to other factors, like mechanization.
It takes a long time to plant and grow. It takes in only seconds for prices like oil and some other ag costs to change. This can result in a windfall, or like now a disaster.
The Federal government has done a little bit of central economic planning that has turned out badly for the farm business person. As for the Federal Reserves indirect part in this, it's just another occurrence of Bernanke blundering into something else without thinking through the full ramifications.
< My apologies for such a simplistic explanation. But actually it would take a thick book to adequately explain all that is happening in this area. >
We are not being governed by geniuses.
":WELL WHO DO I SHOOT?"
"Brother I wish I knew." - The 1941 movie The Grapes of Wrath
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