Remind me again...

What I'm trying to accomplish. A commenter points out an interesting development touched on by my earlier post.

Your friend Ron Swanson wants you to know about the story, 'Life Cycle Budgets: The Next Step in Accounting', on the Farm Futures site. You can get to the story by clicking here or typing http://www.farmfutures.com/story.aspx?s=33813&c=18 into your web browser.

Here is what Ron Swanson has to say about the story 'Life Cycle Budgets: The Next Step in Accounting' on the Farm Futures site:
John FYI - since this seems to be the topic of the day. Ron

The article linked is of importance to farmers right now, but it continues some introspection mentioned before. Not only that, Ron, but it directly ties into a book I have plodding though:

An introduction to econometrics may not seem like the stuff that would keep listeners riveted—much less awake—during a long car ride, but Ayres's provocative audio does just that. Ever wonder how an airline decides to lower its prices? Or why businesses have preferred shopper cards? The answer is data, gigabytes upon terabytes of data. Companies are increasingly relying on data and number-crunching statisticians to make decisions, like how much money they can extract from consumers while still retaining their loyalty. Ayres's exploration of super crunching and its influence makes up the bulk of the audio, but listeners needn't navigate a sea of numbers. The discussion is illustrated by eye-opening examples such as how Continental Airlines took customer service to a new, personalized level and how Mexico instituted an innovative pay-for-performance parenting program. The final chapter on standard deviations may have some longing for the printed page or a PDF file with a graph or two, but overall, Lurie's mellow reading will make listeners firm believers in Ayres's refrain: in a super crunching world, consumers can't afford to be asleep at the wheel. [More]

To be fair, I'm not quite finished, but I already suspect this approach to be shaken by the quant meltdown on Wall Street.  Faith in computer-modeling at all levels (even ours) has been shaken by both the obvious economic prediction failure and the vitriolic climate change debate.  From what I have read, ag isn't easily amenable to randomized testing either, one of the author's key tenets.

In fact, as assertions of non-linear, even random brain processes inherent in our decision making are revealed (more later), I place less emphasis on my lovingly constructed budgets than I do maintaining the correct mental orientation to choose alternate courses in the heat of battle.

As one example, I now suspect when I make decisions, and what happened just before have crucial - even controlling - influence compared to the most intricate and logical analysis. Now add in the growing uneasiness in farming minds that all our thoughtful calculations can be swept aside by a hedge fund rumor.

Looking at my figures, my farm operation has been kept afloat and battered in large part by macroeconomic trends that were buried in the assumptions for cost analyses.  One in particular is the tide of land prices.  While accounting standards would encourage us to discount that effect because it can override unprofitable economic decisions, the truth is guys who rode the wave have overtaken cautious and meticulous allocators of where wealth is generated.

This is a second macro trend our economic decisions must take into account: we are in a zero-sum game in grain farming. Furthermore this boundary is hardened by our immobility.  You don't normally give up on 200-year farms for one far away regardless of the economic benefit. 

Long story slightly shorter: budgets/cash flows will be helpful exercises for securing necessary borrowed capital, but of little predictive use (IMHO).  The form and scope of these devices will be set by the whims of the regulators for the lenders. (Hint: always ask your loan officer what the Comptroller is looking at this year). 

Far better, I think, to have a firm understanding of your internal economic compass and some idea of where happiness comes from. One way I try to remind myself is our Mission (Impossible) Statement:

• Farm well. Farm close.  Be the competition in our township.
• Own the land. Unite the land. Improve the land.
• Be the neighbor you want next to you. Bear more than your share of community load.
• Plant trees in the shade of which you will never rest.
• Avoid working at night.
  

When years like 2009 detonate in your face, it helps to remember which way is up.  Calculating the exact degree of catastrophe is of lesser value.