publication archive: finance
May 10, 2013
Comparing Current and 1970 Farm Prosperity: Cash Farm Expenses
This post is the 4th in a series that contrasts and compares the farm prosperity of the 1970s with the current period of farm prosperity. This post examines U.S. farm expenses during the two periods.Posted by Carl Zulauf Permalink Tweet
May 3, 2013
A Historical Perspective on Illinois Farmland Sales
Farmland prices have soared in recent years, leading to increased interest in farmland markets and in factors affecting farmland prices. Sales records from the Illinois Department of Revenue (IDOR) allow for detailed comparisons of parcel-level information through time and for the construction of summary price trends and other descriptive statistics.Posted by Erik D. Hanson and Bruce J. Sherrick Permalink Tweet
February 14, 2013
Settling MF Global Claims: Who Gets What and Why?
On January 31, the bankruptcy court overseeing the MF Global liquidation approved a plan that will bring this case much closer to resolution. Following its collapse in October 2011, over 27,000 commodity customer claims totaling $10 billion and more than 1,000 securities customer claims totaling $1.4 billion were filed against MF Global Inc. These claims consisted of cash and other assets held in margin accounts, physical commodities held for delivery against futures positions, and investments held in brokerage accounts, all of which became unavailable when the company closed its doors.Posted by Paul E. Peterson Permalink Tweet
December 21, 2012
Your Farm's Financial Health (Debt-to-Asset Ratio)
The end of another year approaches - time to close out your accounting records for the year and review financial statements to assess the financial health of your business.This post will focus on the debt-to-asset ratio and how it tells about the risk exposure of your business.Posted by Bradley L. Zwilling and Dwight D. Raab Permalink Tweet
December 20, 2012
CFTC-SEC Merger Proposal May Have Hidden Costs
The Commodity Futures Trading Commission (CFTC) is the federal regulatory agency for the futures and options markets, and the Securities Exchange Commission (SEC) is the federal regulatory agency for the securities markets. The markets they regulate serve different economic purposes, and the agencies have different regulatory missions and philosophies, receive oversight from different Congressional committees, and in most other respects have very little in common. Nevertheless, periodically there is a proposal to merge these two agencies, usually as a way to achieve "synergies," "efficiencies" or various other promised benefits.Posted by Paul E. Peterson Permalink Tweet
October 31, 2012
Still More on Position Limits, Excessive Speculation and the Dodd-Frank Act
Two recent farmdoc Daily posts discussed the history of position limits and reviewed the CFTC's recently-overturned position limit rules, respectively. Today's post is the last in this series, and will examine the court ruling and discuss possible next steps by the CFTC.Posted by Paul E. Peterson Permalink Tweet
October 24, 2012
More on Position Limits, Excessive Speculation and the Dodd-Frank Act
A previous farmdoc Daily post discussed the history and operation of position limits - the maximum number of futures contacts that can be owned or controlled by an individual or entity - as a way to control excess speculation. To help our readers better understand this issue, today we will review the CFTC's position limit rules that were struck down recently by Judge Robert L. Wilkins, with a focus on the agricultural commodities. A future post will explore Judge Wilkins' ruling and discuss possible next steps by the CFTC.Posted by Paul E. Peterson Permalink Tweet
October 17, 2012
Position Limits, Excessive Speculation and the Dodd-Frank Act
Commodity position limits - the maximum number of futures contacts that can be owned or controlled by an individual or entity - have been in the news since Judge Robert L. Wilkins of the US District Court for the District of Columbia rejected a new system of position limits developed by the Commodity Futures Trading Commission (CFTC). To help our readers understand the implications of this action, today's farmdoc Daily will lay the groundwork by reviewing the history and operation of position limits. A later post will discuss the rejected CFTC position limits and evaluate the impact of Judge Wilkins' ruling.Posted by Paul E. Peterson Permalink Tweet
August 29, 2012
Consumer Spending and Beef Demand
Demand can be measured by the quantities that consumers are willing to buy over a range of different prices. This list of quantities and corresponding prices can be plotted to map out the familiar downward-sloping demand curve, with smaller quantities demanded at higher prices and larger quantities demanded at lower prices. Although "demand" is often used interchangeably - and incorrectly - with the quantity sold, an accurate picture of demand also requires some measure of the prices paid for each of the quantities sold.Posted by Paul E. Peterson Permalink Tweet
August 3, 2012
Lessons from LIBOR
The London Inter-Bank Offered Rate (LIBOR) is a measure of the interest rates at which major banks borrow funds from other major banks in the London market. Rates are calculated and published daily for 15 different maturities ranging from overnight to 12 months, denominated in 10 different currencies. Of these 150 different interest rates, the 3-Month US Dollar rate is the most widely followed.Posted by Paul E. Peterson Permalink Tweet
July 19, 2012
Current Expectations of Future Corn Prices, and Ghosts of Prices Past
It is generally regarded that futures markets provide the best aggregated beliefs about future prices by market participants, given all currently available information; and thus that current prices are also the best estimate of future prices. Changes in futures prices thus reflect changes in information, or resolution of uncertainty prior to expiration. Even if price levels do not change, market participants generally become more certain about the production and demand as time progresses, and the uncertainty around the prices usually declines with time as well. The prices of options on futures reflect the degree of uncertainty about the futures prices and provide a means to recover additional probabilistic information about price uncertainty, or the probability of prices moving to various other levels, either higher or lower than the current futures price.Posted by Bruce Sherrick Permalink Tweet
July 6, 2012
Some Interest(ing) Rate Data
The U.S. Treasury debt market is not only the largest and most widely tracked "commodity" market, it also provides a basis against which almost all other "rates" in the world are measured. The past decade has witnessed rate shocks of previously unexperienced magnitudes; and these have been met with newly envisioned and implemented government policy responses to both private and public sector financial market participants. What follows is a simplified depiction of the history of interest rates, to highlight periods of large movements, associated government actions, and implications for borrowing spreads for the agricultural sector. As the topics just listed could easily fill a four-year undergraduate curriculum with interesting and challenging courses, the version provided herein is cast with a nod to Hawking, as a brief history of interest rates - or the cost of time through time. It is long on pictures, and brief on details at some points, but hopefully provides an interesting presentation of interest rate markets over one of the most interesting periods in recent history.Posted by Bruce Sherrick Permalink Tweet
June 27, 2012
Trading Hours and Daily Settlement Prices
Most of the recent discussion on trading hours for the grain and oilseed markets has focused on the overlap of trading with the release times for various USDA reports. In response to concerns about market and commercial impact from the release of major USDA crop and livestock reports during market hours, USDA published a request for public comment in the Federal Register with comments due by July 9.Posted by Paul Peterson Permalink Tweet
June 15, 2012
Farmland Values: What do Investors Say?
The Illinois farmdoc team and the Purdue University Center for Commercial Agriculture are hosting the 45th annual Top Farmer Crop Workshop, July 9-11, in West Lafayette, Ind. This year's workshop will cover a number of timely and important issues relevant to commercial farming operations. Farmland markets will be one of the issues examined. Farmland markets in most of the U.S. corn-belt have experienced substantial price appreciation since roughly 2001. At the upcoming Top Farmer workshop we will be presenting some interesting results of a recent Center for Commercial Agriculture survey of 246 farmland investors.Posted by Brent Gloy Permalink Tweet
May 25, 2012
Bank Branch Expansion in Rural Areas
The commercial banking industry has been changing rapidly over the past three decades. Changes have occurred in the structure of the industry as well as innovations in the delivery of financial services to individuals and firms. There are continued concerns that the changing landscape and the newer regulatory environment could impact niche banks and banks operating in rural areas.Posted by Paul Ellinger Permalink Tweet
May 11, 2012
How Many Futures Contracts Can One Market Support?
On April 12, the InterContinental Exchange (ICE) announced that it will be offering futures and options contracts for corn, wheat, soybeans, soybean meal and soybean oil beginning Monday, May 14. All five contracts will be settled daily to the corresponding Chicago Board of Trade (CBOT) prices, and final settlement will rely on cash settlement rather than physical delivery. Trading hours will be from 8 PM Sunday to 6 PM Friday, which is substantially longer than the CBOT's current 6:00 PM to 7:15 AM and 9:30 AM to 1:15 PM trading day.Posted by Paul E. Peterson Permalink Tweet
April 5, 2012
Is There a Transaction Tax in Your Future?
A financial transaction tax - collected each time a futures or options contract is traded - is under serious consideration in Europe. In September 2011 the European Commission proposed a 0.01 percent on derivatives trades (including futures and options), along with a separate tax on stock and bond trades. Together these two taxes are expected to raise 57 billion Euros ($89 billion) in new revenues. Britain, which is home to a thriving global financial center in London, would bear the brunt of this tax and has vowed to veto it. Other countries with much smaller financial sectors, led by France and Germany and joined by Austria, Belgium, Finland, Greece, Italy, Portugal, and Spain, strongly support this tax. These nine countries claim to be prepared to implement some version of this tax on a country-by-country basis if the EU-wide effort fails.Posted by Paul E. Peterson Permalink Tweet
March 29, 2012
Cash Holdings Continue to Rise
According to a recent Moody's Investors Services report, U.S. corporate companies are sitting on a record high $1.24 trillion of cash. The Wall Street Journal reports cash and near cash holdings by U.S. nonfinancial firms increased from 9% of GDP in 2003 to 13.9% in 2011. Analysts suggest these increased holdings are partially a reaction to the financial crisis. Some companies are repairing their balance sheets. Although capital investments by corporations are increasing moderately, many companies have been cautious due to the economic outlook and regulatory uncertainty. Due to limited investment opportunities, many companies are simply increasing stock buybacks and dividends to enhance shareholder returns. For example, Apple announced in March they will start paying dividends for the first time since 1995 and also initiate a $10 billion stock buyback next year. The lack of capital investment of this cash does push against stronger economic activity and growth.Posted by Paul Ellinger Permalink Tweet
February 22, 2012
Should I Sell My MF Global Claim?
As described in a previous FarmDoc Daily article MF Global failed on October 31, 2011 with a shortfall in customer funds of $1.2 billion (since increased to $1.6 billion) affecting approximately 38,000 futures accounts. A large percentage of these accounts were held by individuals and entities in the agricultural sector.Posted by Paul E. Peterson Permalink Tweet
January 26, 2012
Customer Accounts and the MF Global Bankruptcy
MF Global failed on October 31, 2011, producing the eighth-largest bankruptcy in US history and the largest commodity brokerage collapse of all time. While this is not the first time a major brokerage firm has failed, what sets MF Global apart is the fact that $1.2 billion in customer funds were missing at the time of the failure, and still remain missing three months later. This shortfall affects approximately 38,000 futures brokerage accounts, a large percentage of which were held by individuals and entities in the agricultural sector.Posted by Paul E. Peterson Permalink Tweet
December 2, 2011
More Iron on the Farm: Machinery Investment Increasing
Farming has always been a very capital intensive business. Substantial investments in land, buildings and machinery are needed to remain viable. Recent farmland price increases are well documented. The Chicago Federal Reserve Bank reported the highest year-over-year increase in farmland values since the 1970s at 25 percent.Posted by Paul Ellinger Permalink Tweet
October 28, 2011
Agricultural Banks Improve Profitability
The health of many commercial banks in the U.S. has improved in 2011. However, many of the large U.S. banks continue to face significant challenges, especially in their residential and commercial mortgage portfolios. Additional regulatory costs including the Dodd-Frank Wall Street Reform and Consumer Protection Act present challenges for small and large banks. As a share of total operating costs, these regulatory costs are greater for smaller banks. Regulators are also placing higher regulatory emphasis on banks with significant concentrations in industry sectors such as agriculture.Posted by Paul Ellinger Permalink Tweet
June 24, 2011
FOMC Policy: Potential Linkages to Farm Interest Rates
The Federal Open Market Committee (FOMC) met this past Tuesday and Wednesday. The statutory dual mandate of the Committee is to foster maximum employment and price stability. From the FOMC statement: "The slower pace of the recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan." The Committee decided to keep the target range for the federal funds rate at 0 to ΒΌ percent and conditions likely warrant low levels for the federal funds rate for an extended period.Posted by Paul Ellinger Permalink Tweet
June 13, 2011
Interest Rate Risk - Know Your Exposure
Easing U.S. monetary policy has resulted in low interest rates for borrowers and savers. The Federal Reserve has kept interest rates near zero for two and a half years and purchased more than $2 trillion in long-term securities. The Federal Reserve's second round of easing, commonly referred to as QE2, is scheduled to end in June 2011. Federal Reserve chairman Ben Bernanke has indicated the Federal Reserve is in no hurry to increase interest rates after the most recent central bank policy meeting. Most market investors assume the Federal Reserve will maintain the low federal fund rate policy to the end of 2011 with potential interest rate increases in 2012. The timing and magnitude of increases will depend on improvements in domestic and international economic growth as well as inflationary expectations.Posted by Paul Ellinger Permalink Tweet
June 10, 2011
Farm Debt and the Farm Real Estate Bubble
With farmland values increasing at rapid rates over the past 5 years, there has been growing concern over whether we are facing a farm real estate bubble. The bubble view links current Fed policy and the resulting low interest rates to the increase in farmland investment activity, noting the similarities between today's interest rate and commodity price environment and that of the period leading up to the 1980s farm crisis. Arguments against the bubble view cite the current income generating ability of farmland, the hedge against inflation it provides as a real asset, and the reportedly lower debt loads currently held by farmers as compared to the period leading into the crisis of the 80s.Posted by Nick Paulson Permalink Tweet
May 27, 2011
The Financial Health of the Farm Credit System
In my last farmdoc daily blog, I summarized the financial health of commercial banks lending to agriculture. Similar to commercial banks, Farm Credit System (FCS) institutions navigated the financial crisis and remain strong and profitable. The Farm Credit System of institutions, established in 1916, provide approximately $160 billion in loans and related services to farmers, ranchers, rural homeowners and other agricultural related businesses.Posted by Paul Ellinger Permalink Tweet
April 22, 2011
The Financial Health of Banks Lending to Agriculture
Most commercial banks lending to agriculture have weathered the financial tsunami of the past 36 months. Many of the agricultural-related banks did not participate aggressively in the high-risk housing or commercial real estate markets. As a result, agricultural banks did not sustain the substantial liquidity and capital problems faced by many global financial institutions. In general, credit remained available for farmers and ranchers throughout the financial crisis. The profitability of production agriculture through the crisis certainly played a critical role in credit quality and quantity at agricultural banks.Posted by Paul Ellinger Permalink Tweet
