The men first discussed three "general" warning signs that could mean trouble for many of a bank's farm or ranch clients and that are beyond the control of individual borrowers. They were (1) low commodity prices, (2) drought or excessive rain, and (3) changes in government support policies. Recommended responses were fairly predictable. In a low price environment, lenders advise clients to put off any capital purchases, cut back on family living expenses, and focus ruthlessly on minimizing per unitproduction cost. Too many producers automatically assume that maximizing yield or output will always result in a lower per unit production cost and ignore a basic economic "law of diminishing returns" that says you reach a point in growing productivitywhere an additional dollar spent on inputs will not generate an additional dollar of revenue. And that point is reached much sooner in a low commodity price environment than when commodity prices are higher.
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