At long last our farmers are prospering. After years of hard work and earning only meagre returns, for the first time in several decades conditions have improved significantly. What happened and will this continue?
Many have noted the huge turnaround in the economies of China and other Asian countries, which enabled them to improve their diets and import grains and meat. There is every prospect that those changes are permanent. However, it must be noted that no country will be immune to the economic slowdown in the United States. No nation will be “decoupled” from troubles there. Therefore, farm imports to Asian nations will not be maintained at recent rates. Nevertheless, demand for farm products will remain relatively buoyant.
Then too, weather conditions in other parts of the globe have hindered crop production. Australia, a major grain producer, has been experiencing its worst drought in recent memory. Conditions in other crop-growing regions also have not been up to par.
A major factor helping farm gate prices has been the growing use of corn for ethanol production. In the long run the enthusiasm for corn-based ethanol has been carried too far. It is energy intensive with inputs excessive for output.
Farmers, notably in the United States, have switched an important portion of their farmland to corn production, and thus reduced wheat and soybean acreage. Over the next year or so, some of that land will revert to wheat and other grain production. Wheat prices have soared, tripling over the past few years, so more grain production will entail lower prices, perhaps falling by 50 per cent.
Another factor in the strong agricultural price structure is the weak U.S. dollar. As that currency slumped in value, many have moved funds into speculating in assets of all kinds, agricultural prices as well as base metals and gold. It is obvious that at some point the decline in that dollar will end. Then speculators no longer will hedge their bets by placing funds in “things.”
Speculators have been responsible for a major run-up in farm gate prices. Over stretched runs have occurred. A rogue trader who caused enormous losses in commodity trades contributed mightily to the tremendous price rises. Corn and soybeans also have moved up. This burst certainly is comparable to the tremendous re-pricing surges of the 1940s and early 1970s. Both breakouts set new ceiling for the next few decades.
Many years ago the United States government planned an ever-normal granary policy. It purchased and stored crops when prices were low and released supplies when prices were high. That smoothed out farmers’ volatile earnings and helped to reduce swings in prices for consumers. That type of program is worth considering.
In the interim, strong farm gate prices are a new fact of life, although, as cited above, somewhat lower prices appear inevitable.