Thursday, April 03, 2008

The hand-written numbers on the wall...

It is slowly dawning on those who would adjust the marketplace by law that they need to have a firmer picture of what winning looks like. I received this e-mail yesterday.
Dear John,

Your association needs your help. We need you to consider planting more corn this season. Based on the recent USDA Planting Intentions report, the market needs more corn than currently planned.

As a farmer, I know input costs are higher for corn than soybeans, and I know that with all the corn last year, it is easier to plant soybeans into stalk ground and slip back into that soybean after corn rotation. The problem is our markets need more corn. Livestock continues to need more corn, exports continue to need more corn and even the ethanol industry is continuing to grow, albeit more slowly. Unless we, as farmers, can collectively grow more corn, we will never silence our critics who claim we are causing everything from increasing food prices to the deforestation of the Amazon and creation of more Global Warming. What is more, we will choke off demand as we finally are breaking free of the shackles of Government Farm Programs.

So as we wait to get into the fields this spring, please seriously consider shifting one more field back to corn.

Thank you for your consideration.

Art Bunting
President, Illinois Corn Growers

Don't get me wrong - I support Art's effort. But has it struck anybody what an unusual missive this is? Corn prices are at record levels, and we literally begging for more acres.

It is not difficult to imagine $7 corn today. In fact, I can come close now with some non-GMO corn contracts. But even the most avid ethanol booster has to be surprised by how the corn grower windfall is playing out.

One glance at the financial reports of the seed, fertilizer and machinery industries demonstrates that we can't make money fast enough to cope with their pricing power. Even faster to react to profits we are temporarily booking are landowners. This is the reason - although I sure didn't see these kinds of numbers coming - why I advocate passionately the ownership of land. Only by capturing the return to land along with the return to operation can farmers withstand the economic power of vendors.

The hog industry is about to see a tsunami of red ink, I think. To be sure, they show no sign of backing off, but as we saw in the grain industry, the breakdown will be abrupt and enormous. While corn growers cite studies showing cornflakes aren't going up because of corn prices, even they can't disguise the nearly 50% contribution of feed to meat costs. Consider just briefly what a modest increase in the dollar would do as to export demand, if those worries aren't sufficient.

We've just about taken all our customers - including our treasured ethanol plants - to the brink. And Art is right. If we don't grow enough corn and get prices below current levels at least, we face a demand devastation. I realize this is frantic searching for a cloud behind our silver-lining, but I really don't want to know what $7 corn will do to the beef herd or Congressional temperament.

Only our predicament won't be caused by mean-spirited "critics". It will arise because we corn farmers made promises we could not keep.


Anonymous said...

After reading this post I came across an article on Successful Farming's website where Goldman Sachs is lifting its three month price target and recomending a long position to investors. I wonder at the implications all this is going to have in the next thirty days as planters roll.

On a separate note, the Ag PR machine is using old oil and I fear the gear grinding is going to start soon. I have been to meetings recently where the statements to the audience (farmers) is just bad practice. Saying there is no price link between commodities and food is ridiculous. Personally I feel there is a contributuion to the food inflation by appreciated commodity prices; however, the numbers game can be made to play however you want. Everyone does it, I do it too, where you can make one number say thirty different things but I think in the short term if we continue to say that the percent of the personal food expenditure is low and then use real cash values for the woe is me on inputs the long term effects are just plain bad.
For instance, one can argue all they want that the value of a food item received by the farmer is only 19%, but when the cost of that item increases the amount received by the farmer does as well.

Like I said, we all do that, and I do too- its a game we husbands play with the Wife all of the time "of course that plasma TV is down in price 13% (Still expensive)"

Sorry to post such a long statement but as an agribusiness person not actively farming I feel like I see too many perspectives to follow the old policies of Ag PR and still be the American farmer feeding the world.

Anonymous said...

Also interesting was the line "we finally are breaking free of the shackles of Government Farm Programs". Remarkable statement from a commodity group president, but then again, it is Illinois...must be something in the water there that preserves the historic spirit of independence that farmers used to be known for.

John Phipps said...

Anon, VA: I have over-posted methinks on the illogic of the food price - commodity price linkage and un-linkage (whenever convenient).

This argument is flowing out of the country and into homes everywhere as grocery prices accelerate. This voice will be just one small protest.

Just think, without subsidies, we wouldn't have to care what people think about our prices, just what they buy. Kinda like, oh - seed corn.