Great Bend Tribune
Published October 5, 2019
First the drought monitor remains basically unchanged except that abnormally dry conditions have crept northeast into Pawnee, Stafford, and southern Barton Counties. The rain since last Tuesday should help. Decent progress, until the rains, was made planting wheat on clear ground. Delayed harvest of summer row crops, is slowing wheat after corn, soybeans, and milo. Fortunately, it is only October 6 so the planting window is still there for optimal production. The possible hiccup is adequate warmth to drydown summer row crops and rainfall. It is still a better situation than many faced last year. Now onto today’s topic.
Everyone’s familiar with the Wall Street Crash in 1929 and the ensuing Great Depression and the Dust Bowl. What many don’t know is that the “Great Depression” started in agriculture much earlier. There isn’t space here to go into detail, however, some of the same factors in play today were in play back then. After the election of FDR in 1932, and as the crisis deepened, Washington took a number of steps many are familiar with (the WPA, TVA, etc.) but they also dealt with agricultural challenges. Part of it was establishing the Soil Conservation Service, now the NRCS, and other agencies. A major concern was the exodus from family farms and the countryside. These concern let to the programs collectively called the farm safety net. These programs evolved over the decades. Over time, and as programs evolved, many producers and elected representatives felt these programs, while protecting producers, inhibited U.S. agriculture and held back items such as crop diversification and producer income. So in 1995, “Freedom to Farm” was enacted that rolled or changed many traditional programs of the previous six decades. This change, largely developed by Senator Pat Roberts and K-State Ag. Economist Barry Flinchbaugh, did indeed provide much more freedom to producers. A main focus of this was using crop insurance to assist producers from risk with less reliance on taxpayer support. Many other programs did and still do exist, however, this was a radical departure.
Briefly and with apologies to policy experts, producers were freed to plant a variety of crops without penalty and more easily diversify. Emphasis was placed on risk management, both agronomically and economically. Certain assistance was put in place to aid this transition and to protect the environment. Insurance was required to qualify for programs. The upside was the ability to follow the money when cropping to increase income. And while this may sound strange – more volatile, less stable markets. Previous policy protected producers and kept them in business, however, for a variety of factors, it “took the top” off the market. This meant that prices could go higher and producers could take advantage of this fact. However, there was a downside.
Producers were able to enjoy higher prices (just go back a few years) and higher profits. However, this also leaves producers more exposed to low prices with much less protection during the low part of the cycle. Overall, producers are less protected today than twenty-five years ago but also better able to reap higher profits on the upside. This has continued through subsequent iterations of the Farm Bill. Next week, what does all this mean today and where are we currently headed.
Part II
Published October 13, 2019
First the drought monitor remains basically unchanged even with the recent rains. The abnormally dry region is as close as Pawnee County. Wheat is being planted and coming up. The area is still lagging in terms of harvest progress for summer row crops but again progress is being made. The biggest weather event the past week was the freezing temperatures last Friday and Saturday. It can be debated if this was a “killing” frost (it has to be so cold for so long) but it ended the growing season for summer row crops. And this should help those wanting to cut grain sorghum. Now onto today’s topic.
Last week was a general discussion of the history of farm programs, the why of these programs, and the changes brought about by the 1995, Freedom to Farm, farm bill. The ag community, from producers to all aspects of the agricultural business agree there is a crisis in the farm economy. Some term it a recession. Some don’t. But all agree there is a problem. The question is why and what is being done to overcome it. First the why in a very generally way.
- American agriculture is efficient. Maybe too efficient for its own good. We produce far in excess of what we can consume. This is due to an array of technological advances ranging from improved equipment and cultural practices, advances in breeding of crops and livestock, advances in fertilizer efficiency, and a better understanding of how to manipulate the ecosystem.
- The laws of supply and demand play a role. Earlier, higher prices after the drought of 2012 result in increased production. This resulted in production in excess of demand and resulted in lower prices.
- Markets play a huge role. The ag community has spent decades cultivating export markets for crop and livestock production. As we speak of huge trade deficits with many other countries, agricultural trade was a bright spot. The US normally had a positive trade balance with the rest of the world. Which leads to the next point.
- The “Trade Wars” with countries like China has resulted in steeper tariffs on ag commodities and with many more countries than China. The outcome was a steep drop in sales for export.
- The weather also is hurting the farm economies. As weather patterns are experiencing more extremes, crop production the last several years has become more difficult. It would be difficult this year and last to not notice the challenges in crop and livestock production from weather extremes. As a side note, in spite of these weather challenges, we are able to maintain good to excellent production as a nation for most crops.
- Input prices haven’t tracked with commodity prices. The steep drop in commodity prices hasn’t resulted in a step drop in input prices.
- Consolidation affects profitability. There has been over the last forty years significant consolidation in agribusiness, especially in the livestock industry but also for crop producers. For crop producers inputs from seed to equipment to chemicals are produced and sold by fewer and fewer companies.
- Finally, consolidation of farms. Bankruptcies are well-above historic levels with the result of fewer, larger farms. And while we speak of millions of farms, a small percentage of the farms is responsible for a disproportionate amount of production.
Natural there are other factors. Next week: What can be done?