Category Archives: input costs

Global Productivity Growth of Agriculture Developing vs. Developed

Productivity growth in agriculture enables farmers to produce a greater abundance of food at lower prices, using fewer resources. A broad measure of agricultural productivity performance is total factor productivity (TFP). Unlike other commonly used productivity indicators like yield per acre, TFP takes into account a much broader set of inputs—including land, labor, capital, and materials—used in agricultural production. ERS analysis finds that globally, agricultural TFP growth accelerated in recent decades, largely because of improving productivity in developing countries and the transition economies of the former Soviet Union and Eastern Europe.

During 2001-2010, agricultural TFP growth in North America and the transition economies offset declining input use to keep agricultural output growing. By contrast, declining input use in Europe offset growing TFP, resulting in a slight decline in agricultural output over the decade. In most regions of the developing world, improvements in TFP are now more important than expansion of inputs as a source of growth in agricultural production. Sub-Saharan Africa is the only major region of the world where growth in agricultural inputs accounts for a higher share of output growth than growth in TFP.

source: USDA

Do Corn and Soybean Farmers Feel Like Hamsters on Wheels?


Flickr CC photo by Asad.

Though we always hear that there needs to be more investment in agricultural research, an agronomy student once told me that his professors are frustrated by the fact that nothing they can offer in the way of agricultural advice will be adopted by farmers unless it increases their profitability. And, usually that comes by way of reducing labor, increasing yields, or through policy.

We have a situation today where the efficiency of industrialized agricultural methods are being challenged because of ever rising input costs as well as ever growing global production competition as more and more of the developing nations adopt our industrial methods of production. Additionally, whereas the U.S. used to be the world’s corn exporting powerhouse, we’ve relinquished export market share since mandated ethanol policy went into effect.

In recent years, the agribusiness giants have done extremely well and many corn and soybean farmers have just ended a cycle of great crop incomes, too. We all know how well the S&P 500 has done in the past five years, but Deere has done even better:

In part recent farm-related profits have been due to government policies of direct farm payments and crop insurance, and in larger part, because of the biofuels mandates. But, it looks like that good time period is about to end. A recently released FAPRI study forecasts breakeven crop prices through 2023 for U.S. farmers.

Furthermore, during the five-year corn commodity price bull run we’ve just experienced, the profits went to the top half of producers, while the bottom half was left out; the top 10 percent of producers made 10 times the amount of profits than the bottom 10 percent.

Approximately 97 million acres of corn and 78 million acres of soybeans were planted in the U.S. in 2013. Let’s take a look at profitability from the farmer’s perspective by using data provided by Mike Duffy of the Iowa State Extension Service, who provides ongoing data updates for the input costs per acre to grow corn and soybean crops in Iowa. His data shows that the machinery costs for growing corn rose 420 percent in the 46 years between 1968 and 2014. The cost for seeds, chemicals, and fertilizers went up over 1000 percent. The yield in corn bushels per acre went up 77 percent for an overall cost per bushel increase of 347 percent over the past 46 years.

My chart below helps demonstrate the numbers:

And the following chart by Chad Hart of Iowa State helps us more in visualizing input costs versus returns of Iowa corn farmers (note the number of years that the average cost of production exceeds the corn price):

source: https://www.extension.iastate.edu/agdm/info/agcycles/hart.pdf

Hart included this commentary with the graph above, “When we examine the average return to a bushel of Iowa corn over the entire time period from 1972 to 2012, it is a positive 5 cents per bushel. However, if you looked at 1972 to 2011, the average return was negative.”

Whereas the input providers can set their prices, the farmer-producer is always at the mercy of the markets. What the farmer has the liberty to decide, however, is his/her choice of methods.

As for benefits, a major economic benefit for the corn and soybean farmer comes from taxpayer supported policy programs which help to ensure that production costs are met each year. The new farm bill offers even greater support to the farmer when prices fall, putting a high floor under prices. Unfortunately, today’s policy also encourages farming on marginal land because of a guaranteed profit to the landowner.

Then, there is also the labor saving benefit of today’s row-crop farmer. Compared to the old rotational grazing systems, the grain farmer’s time commitments have fallen dramatically, offering a better lifestyle and the opportunity to work off the farm for additional income.

What does this all mean and where is the corn and soybean farmer headed?

First, precision agriculture may be another method to increase production, but it comes with a large price both in dollars and in trust of the technology, creating a new set of risks and challenges. Second, integrating cover crops into cash crops can make row-crop farming more ecological and more productive in the long run. And, third, it is expected that by planting closer together, and by further improving genetics, crop yields per acre can continue to increase, but that, too, will come with higher input costs of seeds, fertilizer, and machinery for farmers – which brings us once again to the hamster on the wheel situation.

The farmer who can reduce his/her input costs and produce a product of value, such as providing organic products to answer consumer demand, may do well, and, the younger farmer demographic is looking into new alternatives and ideas which challenge the status quo. Perhaps this is all best summarized by a CNBC news headline that I spotted over the weekend, “There’s a growing discontent around farming in America.”

Monsanto Going Green: Using Bacteria and Fungi to Increase Crop Yields and Lower Inputs

BioAg Alliance, they are calling it, a venture to use microbes and fungi to enhance crop growth and yield, help with pest resistance, and reduce inputs like water. Monsanto paid Novozymes $300 million to partner in this “game changing” venture. Monsanto will do marketing and field testing. Novozymes will do the manufacturing.

Today, the headlines are everywhere about this announcement, but the articles all say the same basic, vague things. Here at B.P.A. let’s learn more.

First of all, this will rock the world of agribusiness stereotypes. People conjure up their own images of the company Monsanto, that goes without saying. Certainly, my own impression of the Danish company Novozymes is not so green, as I’ve seen the massive building which abuts the Missouri River in Blair, Nebraska, that turns out the enzymes used for ethanol production and sits next to Cargill’s massive corn processing plant, and I know what the park-like setting looked like before this industrial complex was there.

My initial reaction to this announcement is that this venture has enormous potential, is, as they are saying, a game changer, and, it is also very green. I suspect, also, that Monsanto doesn’t want to be left out of a future where the cost-competitive advantages of more sustainable production methods using fewer expensive inputs could take off. Using biologicals to enhance yields instead of chemicals has the potential to be a game changer that could help lower the input costs for farmers. Let’s hope.

This whole subject is HOT, HOT, HOT. It received little fanfare at the time, but earlier this year, the American Academy of Microbiology came out with a report, “HOW MICROBES CAN HELP FEED THE WORLD, 2013.” According to the report summary, improved understanding of plant-microbe interactions has the potential to increase crop productivity by 20% while reducing fertilizer and pesticide requirements by 20%, within 20 years. The ASM PDF report reads like a confirmation of Gaia hypothesis.

Here are a few quotes from the Monsanto and Novozymes spokespersons:

“…(this) represents the next layer of opportunity for growers to drive yield and productivity while helping the preservation of finite natural resources in our precious planet,” Robb Fraley, Monsanto’s chief technology officer said.

Novozymes CEO, Peder Holk Nielsen, said that to meet world demand, farmers must produce more food in the next 50 years than they have in the last 10,000 years while using the planet’s land, water and other resources wisely. Nielsen also said that harnessing the beneficial effects of microorganisms has “an untapped potential for biological solutions for agriculture. These products do work. … I believe we are rewriting agricultural history.”

While some of the articles covering this story today are saying this will be used for vegetable and fruit crops, the Novozymes website “BioAg Alliance” page shows photos of corn, soybean, and wheat fields.

The following is a direct excerpt from Novozymes website:

WHAT ARE AGRICULTURAL BIOLOGICALS?
Agricultural biologicals is an umbrella term for microbials, plant extracts, beneficial insects and other organic material used by farmers to increase crop health and productivity.

Microbial-based products are derived from naturally-occurring microorganisms such as bacteria and fungi. They are normally applied to seeds before planting, in-furrow or sprayed on crops, and they protect crops from pests and diseases and enhance plant productivity and fertility. With faster development cycles compared to other agricultural innovations, as well as broad geographic and crop applicability, microbial solutions offer tremendous potential to deliver sustainable, cost-effective solutions that can increase yield using less input.

Agricultural biologicals today represent roughly $2.3 billion in annual sales and have for the last several years posted double-digit percent revenue growth annually.

According to Nielsen, both companies already have products on the market and have been doing work on biologicals.

Next, let’s speculate on what, exactly all of these vague comments about game changing microbials are about.

Somewhere in the mix, one might expect them to use Mycorrhiza:

I’ve defined Mycorrhiza here previously, in this brief summary:

Mycorrhiza, which means “root-fungus” grows in healthy soils and functions symbiotically with plants by enhancing the uptake of phosphorus and other nutrients. The fungus attaches to plant roots, increasing the root surface area which comes in contact with the soil. It excretes enzymes which allow it to dissolve soil nutrients, and extends the life of the root. Mycorrhizal fungus greatly amplifies the ability of plant roots to uptake and reuse phosphorus.

This fungus increases the drought tolerance of plants and can reduce water needs by 25 percent. It increases the fruit and flowering of plants while reducing the need for water and fertilizer. It also enables plants to grow in salty or contaminated soils and increases the temperature stress tolerance for plants. It helps protect plants from disease, and helps store carbon in the soil. Mycorrhiza has the potential to bring poor and degraded lands back into cultivation.

It is possible to encourage mycorrhiza growth in soils by adding compost to your garden soil, by not using synthetic chemicals, using minimum tillage, rotating crops, and growing cover crops. By cold composting, or mulching your garden with shredded leaves each fall, you can promote optimal Mycorrhizal fungi growth. Or, it can be purchased and added directly to sterile potting soils, or degraded soil.

Novozymes says they already have a product that coats seeds with a fungus “that grows along the plant’s roots and produces phosphates, promoting growth and saving chemical fertilizer.” UPDATE: This product, called JumpStart uses the bacterium penicillium bilaii.

Another root-colonizing, helpful bacteria is Rhizobacteria, which form symbiotic relationships with plants, and are generally thought of as important to biofertilizer producers. Rhizobacteria help with nitrogen fixation, and thus enhance plant growth. Inoculating them onto seed can encourage them to colonize the root zones of plants. The rhizosphere, which is the ecosystem around the roots of plants, includes many microorganisms. There are subsistence farmers in India, for example, who know how to use these bacteria to their advantage, according to a friend of this site who also works on similar products.

More thoughts…

In Joel Salatin types of farming methods, soils are already teaming with plant growth-enhancing microbials. And today, some sustainable farming advocates are finding that by using multiple varieties of seeds in cover crops, as on this North Dakota farm that I’ve featured here before, these microbials take off and do save water and fertilizer inputs while producing great crop yields. Useful microbes already exist in healthy soils and there are methods which encourage them to thrive. Today’s industrial agriculture system is not one of them. It would make so much more sense to work with Nature’s wisdom, rather than destroy it and then try to rebuild it.

Some say that the ubiquitous microbials need to be specific for the region and location to match the soils and environment unique to the region. Many say that the life world which teams beneath our feet in soil is a future frontier, a mystery yet to be explored. In healthy soil, there seems to be an infinite variety of microbial life. This whole subject is ripe for discovery, as it relates to carbon storage, too.

Many scientists, smaller companies, and individuals have been studying these microbes for a long time, and some already have products on the market.

It is encouraging to see that the future of industrial agriculture is taking a new direction towards sustainability. Good seeds with sustainable practices sounds like a winner to me.

UPDATE: I recommend this Forbes article for more specific information about this venture between Monsanto and Novozymes.

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Additional Reading:
Novozymes infographic “What are Agricultural Biologicals?”

Mycorrhiza Proves Valuable in Qatar’s Saline Soils

TED Talk: Phosphorus Fertilizer Should Be Replaced with Mycorrhizal Fungi

PBS Video on Qatar’s Food Security Innovation

Hot 5: March Temps. Steiger Fuel Efficiency. Mycorrhiza for Soil. Soybean Supply. Agricultural Trade.

Smart, Innovative Farmers in the Dakotas

Is Humanity Really Going to Starve to Death in Twenty Years Because We Will Have Run Out of Potash and Phosphorus Fertilizers?

Too Much Corn and Too Much Deflation.


Today’s photo, above, is another from my helper, North Dakota photographer, Rick. This photo demonstrates the poor corn yield from a newly converted marginal land out of CRP into corn acres, in North Dakota, in response to high corn prices and a policy which pays for crop failure, and does not pay a competing price to keep acres in CRP. Rick’s accompanying comment for this photo was “New CRP cornfield: no weed control, no fertilizer, nothing.” (I can’t tell you how sad this story makes me, and you as a taxpayer should be outraged, dear reader.)
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If you haven’t noticed, you haven’t been paying attention. All the buzz from our quasi expert economists lately is one word: DEFLATION.

In actuality, this condition has been smouldering for more than six years, or so, but QE-ternity and QE-Krugman have stolen the stage psychologically, even trying to scare us with inflation fears from time to time. Nothing combats deflationary forces like promoting fears of inflation, as there is a large psychological component to deflation, along with the inevitable deleveraging that must take place when an economy has over-leveraged itself. There are just no easy answers when an economy gets to that point, but the ride up sure was fun, wasn’t it? Perhaps your choice is to focus on the potential for collapse and doom, and there are plenty focusing on that, judging by the number of websites and zombie-apocalypse stories which have surfaced these past few years. We might be fine, at this moment, if we had smart, ethical leadership, i.e. a working government and a true democracy right now, but we don’t. Neither do we have a healthy press that can be a watch-dog to the process. Our newspapers continue their demise. And deflation isn’t going away because we also still have big banks that are too big; the goal is still to get everyone to sign their lives away to some type of note, whether it be auto, student, house, land, cell phone, or credit card so we can live beyond our means; and, then, in the end, no one’s saved for their retirement in a new era where we are, on average, expected to live to age 86. And speaking of life-expectancy, our health costs continue to spiral out of control even as we experiment with a new governmental health system that lacks that very thing, the reigning in of costs. What a mess we’ve gotten ourselves into.

Sorry, I’ve digressed badly.

Back to the purpose of this post. What does deflation mean to agriculture?

It’s pretty much agreed that the developing nations’ economic pictures are no longer so rosy, so previously anticipated demand from them may not come to fruition. Besides,they’re getting pretty good at large-scale ag commodity production themselves. We can no longer take for granted export markets in agriculture, and are relying more upon trade agreements. Some of those quasi expert economists which I referred to earlier are in Japan-speak right now, talking decades-out deflation. With an agricultural system that is built upon a mix of supply and demand forces, and policy-driven forces, each of those will be hurt during deflationary time periods. Demand will go down, both domestically and globally. Policy supports will probably back off as well.

Which brings us to the subject of corn.

We already knew we had too much of it and there are rumblings that there’s way more corn out there than the USDA is currently reporting. My family is telling me that there is the biggest daily-growing pile of corn in their small town in Eastern Nebraska, that they’ve ever seen. Corn is piling up everywhere. Farmers are holding on to it in hopes of better future prices even as the EPA has sanely reduced the previously set RFS limits to react to the blend-wall problem, driving its price down further.

Farmland prices are leveling off, as they should be, and there is no doubt that between QE and ethanol policy, the price of farmland is in a bubble.

As other areas of our economy are hit by deflation, agriculture will be, too. Today’s must-read is by Ed Clark, who wrote “Today’s Debt Level Surprisingly Close to 1979,” in which he states, “Featherstone is not predicting a repeat of the 1980s, yet he says the similarities between 1979 and 2012 are striking. ‘If there is a bust, it most likely would be caused by a drop in revenue than higher interest rates.’”

The corn farmer’s revenue is dropping. Per bushel corn prices are under their cost of production. Demand for corn is down.

And in the Midwest, the region which dictates agricultural policy for the whole U.S., it’s all about corn.

Anti-Ethanol Policy AP Story: “They’re Raping the Land”

Rick, the photographer from North Dakota, who is documenting the destruction of the Dakota’s former CRP lands, just sent me another photo which you see above. With it, he wrote, “Most of the newly planted corn fields from the converted CRP lands just have yield strips combined through them — for their insurance company. Then they are abandoned.”

That is what Rick is observing.

His E-mail was well-timed, because it gave me a photo for today’s subject.

Finally.

I’ve felt a bit like a lone voice in the wilderness. The agricultural writer-activists like Michael Pollan and much of media, too, have been wasting their time by promoting anti-GMO legislation, blaming many of agriculture’s ills on GMO crops because they hate Monsanto.

But the real problem has been ethanol policy.

Many of the unsustainable agricultural environmental problems which the U.S. is guilty of today, name any one of them, stem from it. In just the few years since mandated use of corn ethanol has created a new and unprecedented demand for corn, the detrimental environmental consequences have been enormous while most of America has turned a blind and apathetic eye.

So finally today, a lengthy story by the AP — which has lambasted ethanol policy and Obama for endorsing it — is splashed prominently across the pages of every newspaper in America.

See: Making corn-based ethanol badly hurting environment: AP and DO NOT miss the corresponding time-line of ethanol policy A Timeline of Recent Ethanol Events.

The AP story hits Obama hard. They blame him for this ethanol mess and rightfully so. You can’t be a good effectual president and keep claiming that you weren’t aware of “the problem” — whatever the subject may be.

Not to leave Bush II off the hook. He enacted the policy under his watch.

Me? I’ve tended to pick on Tom Vilsack, our Secretary of Agriculture, for not speaking up, for not being a watchdog protecting our soil and water.

But the AP is demanding leadership from our president. Obama’s the one who appointed Vilsack. And this mandated ethanol policy intersects across the departments of Energy, Agriculture, and Defense as well as the EPA. It is embedded into our nation’s governmental powers that be.

Which brings me to another bone of contention that I have. I’ve wished that our nation’s presidents would start appointing good qualified candidates to the position of Secretary of Agriculture — individuals with PhDs in Agronomy, like we’ve been getting for our recent Secretaries of Energy, and more like the EU has in Dacian Cioloş — instead of small-town lawyers from Iowa or Nebraska.

Agriculture is the number one cause of environmental destruction in the world, so shouldn’t the person in charge of its leadership in the number one agricultural producing nation in the world have someone who understands the science behind it? If we mine our topsoil for no good reason, we are robbing the productive capacity of our nation to produce food and have clean water for our future generations.

If a president appoints a lawyer from Iowa to be their Secretary of Agriculture, they are appointing nothing other than the success of D.C. lobbyist special interests from the Midwest to have control of our agricultural policy. Like corn grower lobbyists. Like biofuels lobbyists.

Because we are the nation with some of the richest arable land in the world that the whole world watches and emulates — our policies go beyond our borders.

Today is a day of opportunity to “change” things.

As our farm bill waits to be rewritten, let’s put our subsidies towards rewarding the farmer who has conservation reserve program acres. Let’s strive for new high numbers in total CRP acres, paying a floating rate that keeps the marginal and good unfarmed lands in the CRP program. Let’s quit paying the farmers who choose to plow up their marginal lands — which are guaranteed to erode and destroy what was previously wildlife habitat — when their crop fails. Let’s put our subsidies towards farmers who practice rotational grazing, who grow organic corn and soybeans, who raise grassfed beef, bison, and other livestock. Let’s put our subsidies towards a pasture raised poultry program for the health benefits that these meats and eggs offer over corn-fed. Let’s put our subsidies towards helping the small eat local organic farmer survive and prosper.

And let’s scale back the ethanol mandate — gradually over the future — so our Midwestern producers have a soft landing — while at the same time creating new policies which steer them in new directions, which reward them for conservation methods, and healthier food that is produced more humanely, and more respectful of the land.

Creating the right policies could also allow today’s modern farm producers to reduce their sky-high input costs and hefty energy needs — while conserving soil and water, and while still making a decent living.

And last but not least, new aesthetic values represented in a better farm bill could provide our badly hurting rural communities with a new energy and vibrancy from the younger generation of people that it would attract back to farming, a generation which would love to participate in agriculture, if given the right opportunity.

This AP story is a call for action from President Obama. It is an opportunity for him to lead.