What is in this article?:
- The new norm for farmers worldwide is high commodity prices, high volatility of production costs and little or no safety net for crop failures.
Investing in infrastructure
China has moved away from land development, which has raised production per acre. Instead, they are now investing more heavily in their agricultural infrastructure.
So, the demand for corn and soybeans in China is expected to go up in the coming years. Where China goes other emerging economies, like India and Pakistan, tend to follow.
Brazil is a major supplier of soybeans to China and a major competitor with the U.S. for Chinese markets. However, Liddell stresses the U.S. at current currency standards has a big advantage over Brazil. In the major soybean producing states of Brazil it costs as much to move soybeans to a port as it costs U.S. soybean growers to ship their crop to China.
The end result is that Brazil will have to raise the price of soybeans to cover the cost of transporting their crop to China, which also bodes well for U.S. soybean producers and is a good testament to the value of a strong agricultural infrastructure when it comes to global commodity trading.
In the U.S. the four major crops — corn, soybeans, wheat and cotton — set a record with just over 237 million acres planted this year. These four major crops are driving higher commodity prices for peanuts and other crops in the U.S.
The biggest challenge to U.S. wheat production in the future will likely come from the former Soviet Union, primarily Russia and the Ukraine.
About one year out of three this area of the world will have a big crop of wheat and the other two years some disaster or another will reduce production below what is needed for domestic use.
Russia has a government policy that calls for self sufficiency in poultry production. This year, drought dramatically cut back grain production, so the Russian government banned exports. The Russians asked the Ukraine and other neighbors to reserve enough grain to feed Russia’s poultry population.
The request came in the form of, “If you want natural gas for heating fuel this winter you will reserve enough of your grain to feed our chickens.” That’s how economic diplomacy works in that part of the world, Liddell explains.
“The end result is that about 25 percent of the grain expected on the market was gone. Will there be a similar shortage next year? “Who knows, as an economist I haven’t developed the ability to predict the weather — and similar challenges exist in predicting the commodity market,” he adds.
At the end of the day, the best guess is that high commodity prices are likely to be around for a while.
High prices seem to insure volatility and that appears to be another good bet in the near future. And, high commodity prices are going to drive up input costs and generally double the risk farmers now face to grow a crop.
“The good news for farmers is that there is literally a mountain of money available for investment in agriculture. Over the past four to five years, agriculture has been the safest investment worldwide, so money will be available to farmers, if they are willing to accept the high risk from volatile markets, Liddell says.