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.)
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.
Malaysian poultry slaughter house. Leong Wan Ching. May 2011.
Photo credit: Flickr CC by sooncm.
Today’s post is a follow-up to last week’s post on the changing trade trends in global poultry consumption. Today, we will look at the changing production of meat according to type over the years, both in the U.S. and globally.
How many times have the investors said that they are bullish on all things agriculture because the rising level of affluence in the populous developing nations translates to a future with more people eating more meat?
Case in point is China. In 1978, China’s meat consumption was one-third that of the U.S. Now, it is double that of the U.S.
If you look at this chart, so far the most recent growth in global meat consumption is coming from pork, poultry, eggs, and farm raised fish (aquaculture). These are the meat types which convert feed to protein (pound per pound) the most efficiently.
Counter to what is happening in the developing nations, some very interesting changes in trends in the U.S.’s meat consumption have taken place in recent years. For one, overall U.S. meat consumption has recently headed downwards for the first time in a century. The other interesting notable trend is that per person, poultry consumption has surpassed beef and pork shares in recent decades. So we, too, are increasingly eating the smaller meat animals which convert feed to meat most efficiently.
Many leading environmental voices such as Jon Foley worry that cattle are the number one threat to sustainable global agricultural production. The current trends would suggest otherwise. We are globally headed towards using aquaculture and smaller meat animals for our protein, rich and poor alike. Plus, I’m with Bill Gates and similar minded Silicon Valley investors who believe that the future hot growth spot will be in the innovation of meat substitutes. While this is nothing new in the Asian nations, it is an emerging area of innovation here in the U.S.
Recently, the LA Times featured a story about the company, Beyond Meat, which has created a vegetarian product that is practically indistinguishable from meat. Will it cost less than highly efficient aquaculture and poultry produced meat? So far, that appears doubtful.
Personally, here in the U.S. I’d like to see government subsidies get behind the well-managed production of grass-fed beef or bison, and pasture-raised chickens due to all of the health benefits those meats and eggs provide over factory-produced livestock. Such a policy could help with land use conversion from the over-produced monoculture commodity crops farmers rely upon today, which would be a win-win for the consumer, the land, and the producer.