What is in this article?:
- Rosy crop picture: Will 'hangover' follow?
- Parallels to 1970s striking
• An agricultural price peak, both in the 1970s and 2006-2011 is not the only parallel that can be drawn between the two periods.
• As soon as agricultural commodity prices began to remain high into 2008, we began to hear that prices had established a new plateau, similar to what we saw in the 1970s.
• In the 1970s, neither production costs nor demand growth were enough to sustain prices. It is this final possible parallel that scares us.
• To us it is clear the odds are not in crop-agriculture’s favor.
As we write this column, March 2011 corn futures closed at $6.87 per bushel, wheat at $8.53 per bushel soybeans at $14.33 per bushel rice at $15.80 per hundredweight and cotton at $1.67 per pound.
Compared to February 2006 those prices are stratospheric. What we are seeing is a second wave of a general price increase for commodities that began in late 2006 and saw its first peak in 2008 followed by a retrenchment.
In this column, as elsewhere, parallels have been drawn to the situation in the early 1970s when prices began to rise as the result of the Soviet Union entering the international grain market after a crop failure. The subsequent increase in prices produced a wave of optimism in the farm community.
The positive outlook was bolstered when the U.S. Secretary of Agriculture told farmers to plant fencerow to fencerow.
In 1974, the World Food Conference was held in Rome at a time when over 800 million people around the world were undernourished. The conference delegates established a goal of eliminating hunger within a decade. Farmers were being told that demand for food would exceed production for the next quarter century so the statement by the Secretary seemed reasonable. It appeared that farm prices had reached a new plateau.
Unfortunately for farmers, commodity prices weren’t the only things that went up. Input prices went up as well — fuel, fertilizer, and farm equipment. When farm prices began to retreat, they were quickly at levels below the cost of production, farmers were desperate; and the late 1970s spawned the American Agriculture Movement, farmers marching down Pennsylvania Avenue in 1978, and a massive tractorcade in February 1979.
An agricultural price peak, both in the 1970s and 2006-2011 is not the only parallel that can be drawn between the two periods. As soon as agricultural commodity prices began to remain high into 2008, we began to hear that prices had established a new plateau, similar to what we saw in the 1970s.
Another parallel is the expectation that demand will exceed supply for the foreseeable future. First, this expectation was tied to ethanol and the production of biofuels. Then, the expectation of the increasing need for U.S. grain exports to produce the meat that is being demanded by a growing middle class in developing countries began to be circulated once again — well that is an expectation that refuses to die, it just keeps getting moved into the future.
Yet, the U.S. is expected to export only about 2 billion bushels of corn this crop year, which is well below the 2.4 billion bushels exported in 2007 and in 1989 — yes 1989.
And concern is being expressed over whether or not agricultural production can grow quickly enough to feed the 3 billion increase in population that is projected to occur by 2050.