Category Archives: input costs

In the Bigger Picture….

9 Recommended Agricultural Links ○ ○ ○

Note: Wednesday Editions of “In the Bigger Picture” tend to focus more on general and business information about agriculture.–K.M.


1 . TREND SPOTTING: More and more, institutional investors are owning farmland and its production. Sectors such as almonds, livestock, corn, soybeans, ethanol, and greenhouses are all increasingly owned by institutions. This article is but one of many revealing this trend, and I fully expect this trend to continue.

by Imogen Rose-Smith for Institutional Investor


Today, there are 3 links related to ETHANOL which, as usual, is facing new challenges both in Congress and economically.

2a . ETHANOL EXPORTS: Strategies are being developed to gain ethanol export markets to deal with corn surpluses. $500,000 has been budgeted for export market development in 2015. For example, Peru is being approached because its sugarcane-based ethanol’s low-carbon rating is attracting European buyers, and that spells opportunity for Peru to import ethanol from the U.S. As you can see, this is not an efficiency contest.

By Susanne Retka Schill for Ethanol Producer

2b . 20% TAX BREAK FOR ETHANOL EXPORTERS: U.S. ethanol exports have gone up 47% in four years. It helps that a 20% tax break is available to qualified exporters.

By Donna Funk for Ethanol Producer

2c . 28% CANADIAN CORN TO ETHANOL: Canada is one of the U.S.’s ethanol importers, although it burns 3.25 MT of its own corn [out of 11.5 MT, or 28%] and 1 MT of its wheat [out of 25 MT, or 4%] in its own domestic ethanol production program. (Percentages are according to my own calculations.—KM)

By Erin Voegele for Ethanol Producer


3 . Don’t miss this global NOAA temperature map which shows the remarkable omission of warmer temps in the corn belt region of the U.S. for 2014.

By Michael Roberts for Greed, Green & Grains


Today’s links include 2 on FARMLAND prices and rents.

4a . The annual Iowa farmland survey results are posted here accompanied by two great charts. It concludes that the third golden era of Iowa land prices is ending with an “orderly adjustment”.

By Michael D. Duffy at Iowa State

4b . Farmland rents could fall by one-third.

from Agrimoney


5 . INPUT COSTS/PROFIT MARGINS: This farmer offers first-hand data (in charts) which compares GM versus non-GM corn and soybean profits, as well as her explanation for why their farm discontinued organic corn production.

By Jennie Schmidt for The Foodie Farmer


6 . HUMOR: What is a GMO?

4 Minutes on Youtube


These links were selected by Kay McDonald. For continually updated news about agriculture, please utilize the news feeds on the right sidebar here, and on the “Latest Ag News” tab above.

Farmers Should be Protected During the Long Periods of Low Prices

This post is by Daryll E. Ray and Harwood D. Schaffer of the Agricultural Policy Analysis Center, University of Tennessee, in Knoxville. They write Policy Pennings, and I use their excellent analysis on this site from time to time.

Today’s writing by Harwood and Schaffer tells us that long periods of low prices which don’t cover crop inputs historically can last a very long time and thus they need greater policy support. (My impression is that the latest farm bill supports farmers better during periods of low prices – readers in the know are encouraged to weigh in to help enlighten us.) Beyond that issue we should perhaps be asking ourselves instead why our policy covers these monoculture crops so heavily in the first place, when the end result is always overproduction.—Kay M.


Commodity policy choice: Treat the symptoms or address the cause of low crop prices

When it comes to developing policy prescriptions to deal with the dynamic of long periods of low prices interrupted by much shorter periods of high prices, two approaches are possible: one approach provides symptomatic relief and the other treats the cause of low crop prices. One must choose one approach or the other.

If policy analysts develop and policymakers adopt public policies that treat the proximate cause of low prices—the presence of a supply that exceeds demand—there is no need for symptomatic relief. On the other hand, providing symptomatic relief (to short term price disturbances when prices are high and little relief when prices are low) ultimately becomes very expensive and risks losing public support for agricultural programs when farmers need them the most.

For many years, agricultural economists understood that agriculture was different from many other sectors of the economy in that an oversupply of grain and oilseeds and the ensuing low prices did not bring about a timely self-correction in agricultural markets. Low crop prices did not cure low crop prices within a reasonable time frame.

In other sectors of the economy, low prices cause suppliers to reduce their production of the item in excess supply and consumers to increase their purchases. The result is that supply and demand come back into balance at a profitable price level quite quickly. This timely self-correction does not occur in agricultural commodity markets.

Because they understood the dynamics of the market, policy analysts worked to develop policies that would isolate a portion of the supply from the marketplace, bringing about a balance between supply and demand and the return of prices that kept producers in business. To keep from accumulating ever-larger isolated stocks, policies were also developed to reduce production to allow demand to catch up with production.

Understandably, farmers were often frustrated with these policies. And from the perspective of an individual farm operation this made sense. If they had been allowed to produce more they could have earned more, they reasoned. And that is true for an individual farm. But when all farms seek to increase production, the result is an oversupply that drives prices downward for everyone, and the size of the decline in prices is greater than the increase in production.

In recent years, policy makers and many agricultural economists have simply chosen to ignore these dynamics and instead argue against policies that manage supply. In place of traditional supply management policies, they have advocated for policies that use crop insurance to protect farmers against variations in prices—symptomatic relief.

The problem is that these policies only work well when prices are at or above the cost of production. If prices remain low for an extended period of time, farmers end up paying premiums for policies that do not even cover the cost of production.

We understand that farmers do not want to hear this kind of analysis; they would rather hear about booming export demand, a growing ethanol demand, and a new “price floor.” When we are invited to speak to farm groups, producers come up afterwards and emphatically say, “I don’t like what you are telling me!” and then they continue, “But I needed to hear that.” When prices were high, many economists were telling farmers that there was a new price floor undergirded by increased input costs.

During this period, we continued to tell farmers about the low prices that would come when the yearly increases in ethanol demand began to stagnate and supply continued to increase. We cautioned farmers to put some of the increased profits in the bank instead of buying lots of new machinery and driving up the price of land. Today, some of those who talked only about high prices and a new plateau are saying to farmers, “I hope you put some money away during the good times.” Good advice, but a couple years late.

The trend in recent decades is toward policies that tend to provide producers with little income support when prices are low for an extended period of time. As a result, the associated costs of maintaining a vibrant agriculture can actually be more costly to U.S. taxpayers through emergency programs/payments. Failing that the results could be devastating to a large swath of farmers. For farmers in less developed countries, lower prices have severe consequences. When prices are low in countries where agriculture is a large portion of the economy, the impact on the economy is severe.

The challenge of policy analysis is not to design public policies that make the good times even better; rather it is to have policies in place to help protect farmers during the long periods of low prices. Over the last century, the periods of low prices have been much longer than the boom times.


Photo: FlickrCC by Rae Allen, c.1958.

A Farmer Speaks Out: Unsustainable High Input Costs of Industrial Farming

The fine folks over at Farm Journal’s AgWeb published a letter which they received from a viewer following a show that they aired about the U.S. Farm Report. I thought it was very well stated, and the unsustainability of today’s big ag trajectory is not discussed often enough. What is the cropland owner to do when caught on this hamster wheel???
—Kay M.


THE LETTER:

In today’s U.S. Farm Report Mr. Phipps rightfully pointed out that we all constantly need to learn new skills. But if these skills are just employed in the same direction we have been going for many decades now, then will accelerate the downfall of even more farmers.

Relentlessly driven by economic competition, farming today is a high input game hunting the highest yield.

Ironically in the same shows which feature serious brokers and farm journalists warning the farmers to be prepared for the consequences of their own endeavors and pointing out the vicious cycle of great harvests and depressed prices, farmers are still admonished to be early adopters of the latest technology, i.e. yield enhancing chemicals, machinery and growing methods…as if the narrow band of specialization of row crop farmers was leading anywhere but disastrous ruin for most in the long run.

Only a few very large operations of that kind make it – not without help from the taxpayer, by the way.

Who profits most? The providers of said chemicals, machinery and growing methods.

I do not need to point out who suffers most from that kind of agriculture which has been in the heads of most farmers. On the other hand, there are a good number of examples of farmers who are breaking the mold, resorting to very different approaches to farming, but they are not featured.

Most of them can be found in the organic and/or horse-farming community. As long as farmers let themselves be talked into the afore-mentioned rat race the attrition of their numbers can be safely assumed.

How about forming organizations in which farmers for example discuss optimal yields for themselves and their communities, not maximum outcomes with their price-destabilizing consequences? How about organizations which help farmers to overcome the narrow specialization and give them tools for more diversified farming operations?

I could give more examples, but the idea should be clear: If we continue to be going in the directions we have been going for several decades now we should not be surprised that we will arrive there. Only a few people with deep pockets can even start independents farms, most will be hirelings and/or dependents of large corporations.

–Respectfully, (Missouri Farmer)