About reporting the now widely hyped Looming Apocalypse in Agriculture.
Rule #1: Is the problem local or national/global?
Loyal reader Dave sent this link in from the often aggitated Daily Kos:
Last week I received a very concerned call from South Dakota farmer and agronomist Bryan Lutter. "Neal, we're out of propane!" I figured this was personal distress – he and his family farm over three square miles of land and I know this has been a tough year for many people. He promptly corrected my misconception when I tried to console him. "No, everybody is out, all three grain elevators, we can't get fuel for the bins, and we're coming in real wet this year."Some comments about this post. First - the Kos, one of the most popular bloggers on the Web - tends to write in an intense style you sure won't see in Farm Journal or other ag magazines. To begin with, he never just talks economics, but always anchors it in politics. Notice he segues to how this purported crisis should lead to a changed agricultural system. Due to his high readership numbers, this post may impact how some Americans think the nation's farmers are doing. [More on the consequences of non-farmers getting agitated later]
There are equally dramatic issues due to the bankruptcy of Verasun and the apparent insolvency of the nation's largest private crop insurance program. Payments that would have come in June or July of a normal year are still not dispersed at the end of November and this has grim implications for next year's crop. [More worth reading and parsing]
Second, what this report does is make the easy leap from a local problem to a national catastrophe. I will be in ND on Monday and Tuesday to get more firsthand data from farmers and lenders, but a few facts may help to put this in perspective:
- ND just had a production year from heck. They were late and cool and wet. As of this summer when I spoke to the Sunflower Assn. the crops being harvested were not particularly awful, but the chief complaint was "why did they contract wheat for $6 when it was then $14?" So the agitation now is about the corn/bean crop largely.
- ND is one of the smaller corn producers (and beans) and also despite some phenomenal new hybrids on the real margin of where corn can grow exactly for reasons like this season. It's also why farmers there were stunned when I told I never buy crop insurance. They are big recipients of the $5 B in insurance subsidies even during good years. It is hardly surprising that a corn industry built in the last ten years on such non-market factors should run into financial crunches like this.
- ND has a strong and well-run Farm Credit System which is a much big player relative to competition than in say, IL. Local banks deserve their day in the sun and this is one of them, since they are deposit-based, rather than credit market-sourced for funds to loan. The Farm Credit system will work these issues out, but not without some discomfort to borrowers. Meanwhile, the demographics of ND means they essentially have few choices for credit.
- ND was one of the first states to be headed to be corn-deficit. Because of the powerful social capital there, farmers form cooperatives like Methodists here form committees - quickly and amiably. Trying to get an ethanol coop going in my hometown would require several fights over who get which seat in the board room and enormous legal fees. Consequently, ND has an surprising number of ethanol plants in-state or close whose business plans don't allow for simultaneous crop problems and oil price plummeting. This impacts the financial system locally. Farmers are also discovering that one risk we forgot about is that whether our customer can/will do what he promises.
- ND is a logistical problem. Their demand (for products like propane) is not large and it's spread over an enormous area compared to IL or IN. As a result, an outlier year like this overwhelms the ability to get propane where its needed in amounts being consumed by a crop barely grown there 10 years ago. Meanwhile, in comparison, the price for propane is dropping for me, causing great muttering among those who locked it in.
- The fertilizer "shortage" is exaggerated, I think. The fertilizer industry has decided the demand curve can be written to their own rules. Yields will suffer for some depleted fields, but my dealer is sitting nervously on about 60% of his normal fall spreading inventory, and I'm not buying until the hotshot CEO of Potash Corp. eats his words and develops a different attitude toward his customers. According to my recent soil tests, I can go 4-6 years before serious drawdown begins, I think. Put your K where the sun don't shine, Mr. Doyle. (I'm referring, of course to storage warehouses)
In short, having crop disasters and receiving federal aid is pretty common up there. Many of us elsewhere operate under a different business model that is currently functioning OK, if not as profitably as a few months ago.
Finally, ND is an important producer, but the loss of production being bandied about isn't the food-kneecapper Kos suggests: ND - 285 million bushels; rest of US - 11.7 billion bushels. Perversely, the drop in demand from the Verasun debacle lowers the need for most of the ND crop.
Don't get me wrong. ND and its producers are in a world of hurt, and doubtless will need significant amouns of help. It's another case of a production problem affecting "1% of producers, but affecting them 100%", as the saying goes. To extrapolate that situation to a national scale is mistaken, I believe. The markets don't seem to be worried, for example. Our grain customers should be scrambling to escape this supposed shortage, I would think.
The story of the global/national economic crisis is still unfolding, of course, and new data may lead me to other conclusions, but this aspect of our struggle doesn't warrant the word "famine". It fact, I find it in poor taste when true famine stalks millions eleswhere.
Intemperate cries of the The End of the World are not justified for agriculture, in my opinion. You can place your own bets. I realize it doesn't matter if the problem is merely local if it's your location. But the idea of a meltdown in US ag production is overwrought at best, and manipulative at worst.