You might know it. Just when we are about to launch into serious farm policy discussion, the economics of American agriculture has undergone a paradigm shift. From Keith Collins to guys like me in the field, the enormous impact of biofuels in the markets has shredded most of the assumptions used to make those wonderful and misused economic forecasts which will be used to argue different sides of the farm policy debate.
In addition, the establishment of mandatory requirements to use renewable fuels (including ethanol) and the provision of tax concessions for the production and consumption of ethanol in the United States are expected to raise the demand for corn by the ethanol industry, which may translate into higher corn prices and a diversion of corn away from other domestic uses. [More]May translate? The Aussie economists who produced this model might want to check the prices for corn this fall - ya think?
Strangely too, we have been blindsided by floods of wealth into the commodity markets and so far have not been able to find ways to predict nor benefit from the influence accurately.
One interesting aspect of the latest rally is that the SRW market has actually tipped into backwardation. That reflects the drought-induced fear of shortages, but also the impact of speculative money. One analyst estimates 70 per cent of gross commercial long positions in the December SRW contract are held by commodity index funds. [More]This perfect storm of new factors could very well reduce farm programs to triviality. I was just thinking that if I can grow 180 bu. of corn (my trendline yield) and sell it for $3.50 ($630) my $24 direct payment looks fairly puny (about 4%). Choosing the right hybrid could make me more money than that.
We may be on the verge of farmers - at least corn farmers - deciding on their own that they are ready to move out of the their parent's house and become independent. Imagine the boost for the public image of commercial farmers if the NCGA President announced that corn growers were saying no thanks to taxpayer's money.
Imagine then the impact on the ag lobbyist industry. (That's the fun part.)