Credit Drought (Part 2): Trouble Ahead For The Ag Sector?

Takeaway: The agricultural economy hasn't bottomed and farmers are struggling to keep up with mounting debt.

Credit Drought (Part 2): Trouble Ahead For The Ag Sector? - farm storm


Is the agricultural economy troughing?


The answer is no.


As Hedgeye Commodities analyst Ben Ryan points out, the trends in the farm credit cycle are disconcerting to say the least. Below are four charts and brief analysis from Ryan as a follow-up to "Credit Drought: A Weary Road Ahead For The Ag Sector." (You can follow him on Twitter @Hedgeye_Comdty.)


As you may have guessed, all is not well on the farm.



"According to the Kansas City Fed, more than 30% of financial institutions reported increasing collateral requirements for farmers in Q1."


Credit Drought (Part 2): Trouble Ahead For The Ag Sector? - kc fed 1



"Bankers noted greater than 18% of loans made to farmers in Q1 involved restructuring existing debt to meet short-term liquidity needs."


Credit Drought (Part 2): Trouble Ahead For The Ag Sector? - kc fed 2



"In Q1, farm real estate accounted for 22% of collateral on non-real estate loans greater than $250K, up from 13% two years ago."


Credit Drought (Part 2): Trouble Ahead For The Ag Sector? - kc fed 3



"So according to Farmer Mac, every single Ag. related commodity is 'low.' I'd be begging for bottom too."


Credit Drought (Part 2): Trouble Ahead For The Ag Sector? - kc fed 4

Need more?


Here's a key takeaway from a recent Bloomberg story:


"The USDA has forecast farmer income will drop to $54.8 billion this year, the third straight decline and less than half of the record profit earned in 2013. The ratio of debt to income has more than doubled in three years to 6.8 percent, the highest since 1984, when the Midwest was mired in a farm crisis that saw the highest foreclosure rates since the Great Depression."


Call Invite with Top Washington Political Strategist Scott Reed

Hedgeye Potomac is hosting a call with one of Washington’s top political strategists, Scott Reed, to share insight on the presidential election, the upcoming Democratic and Republican conventions, and outlook on the Senate and House races this fall.


The call will take place on Tuesday, June 21st at 11am ET with prepared remarks from Reed followed by Q&A.




Scott Reed is the senior political strategist at the U.S. Chamber of Commerce. He is responsible for overseeing the Chamber’s federal voter education program. Reed created and implemented the blueprint for that strategy to help recruit business-friendly candidates, overseeing traditional and digital advertising campaigns, and identifying credible messengers to showcase the importance of the free enterprise system.


Reed was campaign manager for Bob Dole’s 1996 presidential campaign. He oversaw the national campaign, which included political strategy, policy development, communications, and advertising during the GOP primary and the general election. In addition, he directed preparations for the 1996 Republican National Convention in San Diego and the vice presidential selection process of Jack Kemp. In 1993, Reed was appointed executive director of the Republican National Committee. He served as chief operating officer of the GOP during the historic elections in 1993 and 1994 when the Republicans gained control of both the House and the Senate for the first time in more than 40 years. During the Bush administration, Reed served as chief of staff to Secretary Jack Kemp at the Department of Housing and Urban Development. He directed personnel, political, and policy matters, employing a long-term empowerment and privatization program. 




Toll Free:


UK: 0

Confirmation Number: 13638941

INVITE: Demography Sector Launch Call: Breaking Jobs Numbers, Disturbing 2015 Births/Deaths News

Takeaway: We are hosting a conference call on Thursday, June 16th at 1:00 PM ET to introduce our Demography Sector and review some key topics.

We are pleased to welcome Neil Howe as the new Sector Head of Hedgeye Demograpy. For access to Thursday's call, please email




Join us on Thursday, June 16th at 1:00PM ET when Neil Howe will be launching his new Demography Sector and explaining both his method and the range of issues he will cover. Here we will focus (near term) on the jobs slowdown and the surprising 2015 vital statistics release. We will also focus (long term) on population growth, the housing market, productivity growth, and possible outcomes for long-term rates. Questions about Neil's views on how generational changes are shaping the 2016 election year mood are invited. Please contact  for additional information.


watch the replay below


Call Details


Demography is a big word with fuzzy boundaries. Yes, it certainly includes long-term population trends. But it can also include breaking data on anything "people" are doing or feeling. Our Demography Sector will overlap with every other sector. But it will focus less on individual firms than on industries, product themes, sentiment trends, measurable shifts in the popular mood, and inflection changes in the macro numbers.


 Key points to be discussed:

  • Neil's background and overall method; range of issues the Sector will cover. 
  • What do the breaking jobs numbers say about the economy: Healthy growth? Impending recession? Hitting the NAIRU wall?  Thoughts on jobs, Brexit, and another Fed hike.
  • Unhealthy trends: Deaths up, births down. A look at the disturbing CDC early report on U.S. vital statistics in 2015.
  • A long-term housing forecast--overall bearish, but with some bullish hot spots. We start with realistic demographic projections... and then add a generational overlay.
  • Reflections on stubborn downward trend in long-term rates: What Mr. Market may be supposing about future growth in prices, population, and productivity. 

We look forward to seeing you.

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Capital Brief: Trump's Donor Deficiency... & What's On Bernie's Wish List

Takeaway: Sanders and Clinton Set to Sit Down; Contrasts in Circumspection; Donald's Donor Deficiency

Editor's Note: Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please email


Capital Brief: Trump's Donor Deficiency... & What's On Bernie's Wish List - capital brief


Hillary Clinton and Bernie Sanders are set to sit down and discuss Sander’s policy wish list, his campaign, and the upcoming convention in July. Sanders has yet to suspend his campaign and up to this point felt that the longer he holds out, the more leverage he has to push Clinton and the Democrats in his direction, but he’s getting perilously closer to overstaying his welcome.


Look for Sanders to push his mainstay ideas like wage inequality, free healthcare and free college tuition, and Wall Street reform, while Clinton looks to press for issues she hopes will end up unifying the party - like climate change, immigration, and foreign policy. With Donald Trump threatening to ban ethnic groups and cancel the Paris climate deal, look for Sanders and Clinton to rally and unite the party with their eye on the November prize being more than just the White House.


In times of turmoil, true leaders emerge and have stood to both console and rally our nation. The tragic massacre in Orlando comes as the first big test of the 2016 general election. Trump is using the situation to double down on his sentiment towards Muslims, immigration and went on to tweet an I-told-you-so statement, calling for President Obama to resign.


In contrast, Clinton canceled her first dual campaign appearance with Obama, delivering more somber remarks and outlining her goals to combat terrorism. Candidates will ultimately differentiate and further distance themselves from their opponent in their response to situations of this magnitude - expect this to prevail throughout the election.


The Trump camp may have lost more sorely-needed donors after high profile patrons made no bones about shutting their wallets at Mitt Romney’s annual conference. Donors were vocal in their concern with Trump’s lack of discipline and his demagoguery.


The summit, which brings together Romney’s extensive network of wealthy contributors, further serves as a reminder of the hurdles Trump faces in corralling the monied crowd. If he’s unable to mend the wounds, look for these dollars to go elsewhere – we hear Gary Johnson is looking for help.

Less Than Zero: German 10-Year Yields Go Negative (#GrowthSlowing Anyone?)

Takeaway: The German 10yr Bund yield went negative and hit new all-time lows at -0.0047% on global #GrowthSlowing fears.

Less Than Zero: German 10-Year Yields Go Negative (#GrowthSlowing Anyone?) - bond yields


Big news in bond markets today.


The 10yr German Bund yield went negative, hitting an all-time low, as investors flocked to sovereign bonds on global #GrowthSlowing fears. Take a look at the long-term chart of the yield on the German 10yr over the last 26 years.


A truly amazing rally.


Less Than Zero: German 10-Year Yields Go Negative (#GrowthSlowing Anyone?) - german bund long term


The graphs below show the yield curves for select sovereign bonds today (green line) versus where they were at the beginning of the year (yellow line). As you can see, there's been a massive rally in long bonds around the world. 



12/31/15: 0.627%

Today: -0.0047%


Click images to enlarge.

Less Than Zero: German 10-Year Yields Go Negative (#GrowthSlowing Anyone?) - bund 6 14



12/31/15: 0.260%

Today: -0.169%


Less Than Zero: German 10-Year Yields Go Negative (#GrowthSlowing Anyone?) - jpy 6 14



12/31/15: -0.091%

Today: -0.519%


Less Than Zero: German 10-Year Yields Go Negative (#GrowthSlowing Anyone?) - swiss 6 14


U.S. 10YR:

12/31/15: 2.270%

Today: 1.6053%


Less Than Zero: German 10-Year Yields Go Negative (#GrowthSlowing Anyone?) - ust 6 14

Stock Report: Dunkin Brands (DNKN)

Takeaway: We added DNKN to Investing Ideas on the short side on 6/06.

Stock Report: Dunkin Brands (DNKN) - dunkin table 



Slowing Top Line: 


Since peaking in 4Q12, Dunkin Brands' 2-year same-store sales trends have slowed by over 350 basis points to 1.7% in 1Q16. Adjusting for the weather benefit in 1Q16, 2-year sales trends are likely flat. The self-inflicted issues (more on that below) coupled with the increasingly competitive environment, suggest that it’s unlikely that DNKN can regain momentum anytime soon. We believe that major internal changes are needed to fix the brand beyond the ones already announced.


Slowing top line is also indicated by our proprietary Donut Tracker modelIt continues to trend downward, making DNKN’s positive performance in 1Q16 look like a one quarter phenomenon supported by price, and is not indicative of stability or strength.


Click to enlarge

Stock Report: Dunkin Brands (DNKN) - donut tracker




Overcomplicating The Menu Is Bad For Operations: 


DNKN currently faces an issue many operators have faced => menu overload. Over the last four years, the company has shifted away from its core competency and significantly increased the number of menu items. In addition, Dunkin’s barbell menu strategy (value versus premium products) is adding complexity to the menu, slowing down service times and increasing costs in the supply chain. The number of Dunkin’ menu items is up over 43% since 2010 and up 19% YoY in 2015.




Slowing Unit Growth And Uses of Cash:


The slowing sales trends poses a longer-term risk to the company => slowing unit growth. In addition, the further the brand gets from the core markets in New England, the more expensive it is to build stores. The combination of slowing sales trends and lower new unit volume increases the likelihood that the company slows unit expansion. Finally, the company’s ability to pay out significant amounts of cash to shareholders is also at risk.


Stock Report: Dunkin Brands (DNKN) - dunkin chart

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