The Coming Harvest

by Ken Houghton

Claudia asks the question of the day of the previous post:

When you say “the coming harvest” are you speaking from a purely literal standpoint, or are you also speaking metaphorically?

I was starting from the literal. When you get to the consequences, then you get to think Buffy the Vampire Slayer.

2slugbaits laid out exactly the scenario that makes early November too late:

The coming harvest may just rot in the fields. No liquidity, no market for the grain. And no loans to rent equipment to bring in the harvest.

I hope the Republican farmers in the red states are happy. Well, at least they’ll still have their shotguns…they may need them.

I pointed this out to someone today, who started ranting about farm subsidies and how the farmers won’t suffer, so we’ll do this slowly, just in case:

  1. Farm subsidies are an atrocious waste of money, and badly allocated.
  2. However, farm subsidies are either (a) payments made to farmers not to grow (keeping prices higher, and theoretically also ensuring the land isn’t depleted) or (b) additional payments for crops that are harvested and delivered to market.
  3. Therefore, by and large, farm subsidies are irrelevant to the harvesting of crops. And that is the subject of the day.

What often happens in farm country is that farmers plant, tend, and fertilize out of last year’s earnings. By the time you get to the harvest, though, they tend to be tapped out.

Fortunately, they have several thousand dollars worth of crops in the fields. So they go to the bank and say, “Lend me enough money to get through the harvest”—so I can pay workers and/or rent equipment, sort and allocate grain from chaff, get the crops to the market, and get paid for them—”and I’ll pay you back in November/December.”

Banks, knowing this is as close to a risk-free short-term loan as there is in commercial lending, generally loan the money.

But they won’t do it at any reasonable rate if they’re going to get hammered over the short-term. Which means there will be farmers who can’t harvest, crops left in the fields, and higher food prices.

Anyone have any further questions about how Wall Street affects Main Street?

Come to think of it: