We attended a brunch sponsored by our crop insurance agent this morning at which there were some great speakers. One of the speakers happened to talk about the same things I put in my post earlier today.
One of the reasons prices for corn and soybeans in particular are so high is that the stocks of grain left after the end users get what they need have been getting smaller and smaller. So demand is high, but there isn’t much extra to go around. As a result of such high demand for many types of crops there is going to be an acreage battle this spring for what gets planted.
A topic that was touched on this morning is that the price of cotton has hit an all time high. So you might ask, “You don’t grow cotton, why should you care?” Well, I care because southern farmers are going to raise a lot of cotton this year, some of that which would otherwise be planted to corn and soybeans. And there is going to be demand to produce that cotton crop as China imports more and more. The two most populous nations in the world, China and India, are consuming more and more resources everyday as more citizens move into the middle class. With all those extra cotton acres this year’s ending stocks of corn and soybeans may very well again be low. It also doesn’t help in the Midwest that corn, soybeans, and wheat can all be sold for very high prices right now fueling the acreage battle a potentially keeping stocks low again this year.
Now we can get back to what I meant in this morning’s post “Too Much of a Good Thing.” It looks like our farm (and likely most farmers across the nation) are going to fare very well financially this year as high prices are likely to continue. Why is this potentially too much of a good thing? The commodity market is cyclical just like the stock market, and eventually what goes up must come down. Nobody wants to repeat the unpredictability of the record prices of 2008 again. Corn hit a peak of $7.92/bushel in December and within a few months had crashed all the way to $2.90. The big problem comes when it’s time to plant that next crop. Fertilizer and other inputs tend to follow those commodity prices up and when you crash like we did a few years ago that corn you can only sell for $2.90 is hard to swallow when the inputs to grow it are still tied to that $7.92 price.
So when I said earlier today that farmers hate record high prices about as much as lows, it’s because those highs can often be followed by the lows. It just makes it harder to plan ahead when there are so many variables in agriculture to deal with all ready. I would rather sell $4-$5 corn and raise 200+ bushel crops every year and make my money through volume sales rather than a high price per bushel, but the nature of the market makes that pretty hard. And then there’s the weather. You don’t really know how that affects the crop until you start reading that yield monitor in the combine. There’s still a lot that remains to be seen in 2011. Spring will be here soon and we’ll know how much of everything was planted. I think the best we can hope for right now would be a stellar year for weather bringing a big harvest for everyone this year, raising supplies and stabilizing some prices.
