Corn prices have been near historic lows, and now we finally have upward
change (which apparently is something the under-educated news media doesn't grasp. Guess we know who flunked out of calculus in school).
I live in rural Iowa and work in Nebraska and have many friends who are row crop farmers. Both corn and soybean prices have finally increased past the government subsidy for minimum prices (which unfortunately has detrimental effects itself). Last year, farmers were dumping crops and not even bothering to store them due to the prices being so low. The took the subsizided minimum price and cut their losses. More farmers were squeezed out of the market. The U.S. economy has had a massive shift from farm-oriented rural economies over the past century (from 95% rural agricultural focused to less than 5%) which automation and technologies certainly improves, but the losses we've seen since 1990 has had little to do with any further automation.
Unless you've inherited at least 2,000 acres, you can't make the finances work in today's row crop economy. Those that are doing fine have more than 3,000 acres per family for corn and beans in our parts. At $2,200 to $3,200 an acre, you cannot purchase new land and go into farming and survive, even with considerable governmental support. You have to have a base of inherited land that has nearly zero cost as a base, and even then you're dependent upon subsidized government crop insurance. Consider these numbers: good corn yields around these parts of the Midwest are 140 bushels per acre. At $2.50 a bushel, your gross income per acre is a whopping $350. Less fuel costs, seed costs, fertilizer and other chemical costs, irrigation, crop insurance, tractor & combine machinery costs, contractor costs for spraying, trucking costs to move crops from the field to market, and any storage costs, you're looking at hard costs of $200-$250 per acre. $100 income per acre, before labor and land cost. Remember, I said you had to already own the land, because if you do the net present value math on 1,000 acres at $2500/acre (6% over 10 years), you'll be paying $340 per year per acre - which is almost as much as your gross profit itself. Care to dive into farming?
So understand that corn prices have been historically low, and now they are finally changing due to demand for the product. Any economist worth his salt can tell you the crops being produced aren't priced right when the total profit from the sale of those crops barely covers the cost of dormant land, let alone all the other expenses (using pragmatic numbers assuming 10% margins bearing full costs, we should expect to see $7 to $8 dollar corn per bushel, or must see a dramatic devaluation in farmland prices). Foreign subsidization of corn crop production has also kept prices unnaturally low, as well as import barriers on U.S. product. Just like global warming, you cannot have a rational perspective if you accept only the extreme outliers at one tail and call that a central tendency. Prices will change, and in this case,
regression to the mean [wikipedia.org] is going to occur (meaning that things tend to want to go back to the normal medium, rather than staying at the extremes).
If you're looking for things to panic about, this isn't one of them. Be thankful that we won't lose even more U.S. crop production human capital, or the natural correction of this unnatural trend will be even more dramatic. Be encouraged that poor foreign farmers in Mexico, South America and elsewhere are being paid more for their crops, instead of throwing a couple more billion dollars at the oil elites. If you hate big business, hate the multi-billionaire clubs, hate corrupt oil cartels, then spend your gas money on ethanol fuel and biodiesel.
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Topic: Food Prices Going Up: (Read 134 times)