why i'm holding onto nufarm, page-10

You have to stand back from the way agriculture has functioned since the move from low input pasture based production up the risk chain into high input cropping and intensive livestock operations. That move has only been possible with plentiful, cheap credit and the ready access that enables to the world's fertilizer and petrochemical input resources. Debt loadings continue to increase within individual farming enterprises and this has been underwritten by rising land values. Sound familiar? This is exactly how the US subprime housing mess began.

Granted farm debt to equity ratios are much better than what the US householder was and we do have a productive base beneath those business models. But if you throw out the assumption of cheap credit, rising interest rates pose a serious problem to the borrow for productive capacity model. Now if you also throw in falling farmland valuations and if they are significant, then all of the sudden an industry wide deterioration in debt to equity ratios occurs as in the 1980s here in Australia.

If farmers do not step back from the industrial agricultural paradigm and reassess its viability with the assumption of much higher credit costs, much higher input costs (the ETS will guarantee this) and the risk that normal seasonal variances impose, then the risk for a subprime fallout increases significantly. Agriculture may well be exempt from the upcoming ETS but the fertilizer and chemical manufacturers will not be so we may as well be included.

My gut feeling is that the current price collapse of grain commodities and record harvests does not correlate with the collapse of fertilizer prices (obviously as a result of reduced farm applications) and the returns the world's major fertilizer suppliers are reporting. This makes me even more cautious that if there is any dishonesty in our markets and the markets are trending towards a gad news story, to respect what may happen.

I think for Australia it will mean a lot of cropping ground will trend back into lower input production models. Best way through uncertainty is to back your costs right off and forget about targeting high rates of return. Preservation is number one consideration in the farming game.

Now I could be wrong but the number of farms hitting the market over here in WA is nothing short of amazing. Who is going to buy? The neighbours are already geared to the hilt because they bought the BS that you had to get big to be successful in farming. All it guarantees is you have ever increasing amounts of debt ... I can see a big fall in land valuations coming out after this year. Reign in your debt. That's what credit markets have been saying ever since the credit crunch began in October last year. Good luck ...