I ran into a former colleague the other day, and he asked me an intriguing question: Where is U.S. agriculture headed. Flattered he would ask me, I was determined to not give him my true thoughts — I don't know. I said something like, “Some of it will likely go offshore and some will struggle to cope with high input costs.”
In reality, I don't have any evidence U.S. agriculture is moving to foreign countries. History leads us that way by looking at what happened to the steel industry and more recently the textile industry.
It seems every farmer I talk to these days is troubled by the huge amounts of money being handled, with little assurance these big dollars will ultimately mean any profit, much less big profit.
The one thing I can say with some assurance is that it costs a lot more money to farm these days — a lot more money. Handling more money generally equates with handling more risk. More risk is definitely something farmers don't need.
I am fairly sure the commodity marketing system that has helped farmers cope with risk over the past half century or so is in big trouble. The Chicago Mercantile Exchange, in fact, recently acknowledged their wheat futures contracts are broken.
Big money found agriculture at a time when it needed cash the most, but the price of such a huge cash infusion may turn out to be more than most farmers can afford. Large investment portfolios pumped billions of dollars into the U.S. commodity market and took millions in profit away, and are still doing it.
Sure the price of corn, soybeans, wheat, cotton and peanuts has risen as a result of competition for acreage. Unfortunately, input prices are tied to these artificially high prices and companies that sell everything from potash to genetically altered seed are not likely to want to reduce their record profits.
Let's hope a farmer getting $9 per bushel for wheat is not like your favorite football team which scores five touchdowns and loses the game 38-35. Right now, there is little defense for rising input costs. If the offense (prices) goes south, farmers are in big trouble.
Many wheat farmers got a bad taste of what may be coming when they paid the high input costs to grow this year's crop, expecting to sell their crop for a high price. In many cases the price was good, but no one was buying. If there is no buyer, there is no value and many wheat growers found out that wheat for livestock feed will not trade at $10-$12 per bushel.
If there is an economist out there who knows how long high grain prices will last, how far they will fall, and how closely will input costs follow reduced grain prices, please let us know. Farmers would pay big dollars for that kind of information.
I asked a large acreage, highly successful North Carolina grain farmer the same question my friend asked me — where is U.S. agriculture heading. His immediate response was, “turn that thing off”, referring to my tape recorder.
Anonymity assured, he said, “With today's price of grain and today's cost of growing a grain crop, a farmer has to be more efficient than at any time in history in managing land, labor, fuel, fertilizer, seed, pesticide and water costs. Under these conditions, in many cases one average, not bad, just average year will put a lot of farmers out of business.”
I don't know if that assessment is true — I hope not. I do believe there is a lot of reason to be optimistic about U.S. agriculture. I think it will take on some new dimensions, but I don't see large acreages going out of production. Some farm land will go out of production and some of those crops will likely be grown more extensively in foreign countries.
Technology is likely the key to how well American farmers adapt to higher risks. If corn breeders can genetically alter corn hybrids so these plants will produce over 100 bushels of corn per acre on parched African soil, using less than three inches of water per crop year — most anything seems possible to me.
After having some time to reflect on the original question — which way is U.S. agriculture headed, I'm inclined to change my answer. U.S. agriculture is headed in a new direction, with more land-use dimensions and marketing opportunities. Those who adapt will do well, those who don't won't do well.