9 ms·

Very interesting. Modern technology lets you grow corn that would previously take 120 days in 80, and everything is getting cheaper and more efficient. At the s

Very interesting. Modern technology lets you grow corn that would previously take 120 days in 80, and everything is getting cheaper and more efficient. At the same time prices for corn are falling, but nobody wants to stop growing it because they're locked in with expensive equipment.

mapmap 9y ago
A similar oversupply happened right before the Great Depression. Wheat prices were dropping from too much supply partially attributed to newly expanded prairie farming in the US. But these farmers owed fixed costs on their mortgaged land. So to pay their expenses, they plowed up more prairie and grew more wheat. This compounded the supply problem. Eventually, as wheat piled up at railroad depots unable to be sold, farmers left the plowed prairie fallow and the topsoil blew away. Source: The Worst Hard Time by Timothy Egan
- StudentStuff 9y ago
  Thing is, prices for food never really shot back up massively, instead our govt ended up creating price floors for many commodities, insofar as they would give farmers money if what they produced was sold for less than a certain amount[1]. This led to consolidation, whereby family farmers became much fewer in number, and those that owned and operated larger farms ended up working a 2nd job to cover their living expenses. What used to take a whole family to farm is now nearly entirely automated, causing food prices to continue to decline. 1 - https://en.wikipedia.org/wiki/Agricultural_subsidy#United_States https://en.wikipedia.org/wiki/Agricultural_subsidy#United_St...
  - falsedan 9y ago
    > What used to take a whole family to farm is now nearly entirely automated, causing food prices to continue to decline I don't see the immediate causal relationship between these: cars are semi-automatically manufactured, but the price of cars hasn't declined anywhere near as much as grain/commodities.
    - Pyxl101 9y ago
      The quality of vehicles has increased dramatically over that time. There isn't a similar increase in the quality of grain. A vehicle that I purchased roughly ten years ago has operated perfectly fine with half of its scheduled oil changes and very little other maintenance. From an engineering perspective I find that mind-blowing: you buy these machines and they operate flawlessly for years, running for thousands of miles, while performing a complex, mechanical task with many moving parts. It's easy to take for granted how marvelous modern automobiles have become.
      - falsedan 9y ago
        Thanks for explaining how car quality has improved, but I still don't follow your link between automation and price decreases. I feel like your explanation doesn't address the market side of farming, and disregards the huge advances in crop & agricultural science.
        danmaz74 9y ago
        Not the OP, but the point is that the car you buy today has much more value than a car that was sold 20 years ago at a similar price. So, even if the average price paid for a new car didn't go down, the price for the same car has effectively decreased, thanks to automation.
        pavlov 9y ago
        Also, the regulatory environment has changed. The car you could buy 40 years ago couldn't be sold today because it's unsafe, too polluting, etc.
        falsedan 9y ago
        I still don't see how this relates to farm automation: automation didn't significantly change the price point, it increased production, decreased labor costs and increased equipment/maintenance costs.
- dredmorbius 9y ago
  The general phenomenon is the "Backward-S Shaped Supply Curve", and yes, I mention the Dust Bowl instance (from Egan via Burns's PBS series) sepecifically. There are others. https://redd.it/53mcxn https://redd.it/53mcxn You'll see this phenomenon any time an economic agent (individual person, labour market, farmer, extractive resource operator) has some inflexible and fixed minimum set of costs to maintain or they will go out of existence, vs. some variable production function or market price structure. It's similar with the general aviation phenomenon of "failure to maintain altitude". Aircraft fly fairly well through air. Performance characteristics through land or water are rather less optimal.
nerdponx 9y ago
That's not why. It's because the US government so aggressively subsidizes corn. This is done at the behest of the Ag lobby, which represents corn-buying conglomerates who love low corn prices.
- dogruck 9y ago
  Yes. Also, unwanted farming equipment is easy to sell.
  - randomdata 9y ago
    As a Canadian corn grower, I'm not sure how the US (or Canadian for that matter) government is subsidizing me growing corn, but the reality is that the prices were still quite strong at the start of the year when we were looking at contracts for the season. I'm very happy with my corn position this year. We may have reevaluate growing corn in the future if the market does dry up (although for crop rotation purposes that is a hard choice to make), but when the market is buying it at a profitable level, why wouldn't we grow it?
    - protomyth 9y ago
      For the US, the subsidy most cited is ethanol subsidy. Might have something to do with the first primary state being Iowa.
      - toomuchtodo 9y ago
        > Might have something to do with the first primary state being Iowa. This is entirely why the ethanol subsidy remains. I have high hopes the electric vehicle movement kills this.
    - thisisit 9y ago
      US government has the farm bill which provides some form of insurance: https://www.washingtonpost.com/news/wonk/wp/2014/01/28/the-950-billion-farm-bill-in-one-chart/ https://www.washingtonpost.com/news/wonk/wp/2014/01/28/the-9... This provides a price insurance for farmers. This year's price was set at: $3.96 per bushel for corn and $10.19 per bushel for soybeans (reference - http://www.wisfarmer.com/story/news/2017/03/08/corn-soybean-prices-set-2017-crop-insurance/98891684/ http://www.wisfarmer.com/story/news/2017/03/08/corn-soybean-...) So with the support prices, unless the yield prices goes below support, people will still grow corn. As how does it affect Canada? For one, Canada will surely be having it's own insurance program. Second, It is a simple arbitrage play, if Canadian supply is cheaper people will buy cheap corn from there and import to US. Curious what price level you would say is unprofitable to grow corn?
randomdata 9y ago
The main reason prices are falling is that we are coming off the biggest commodities boom in history. 2008-2013 saw record setting prices for corn, soybeans, and wheat. Really, things are just returning to normal now that the boom is over. As you would expect, marketing corn is more challenging now, after the boom, but there is still opportunity for money to be made. The thing about these crops is that the market price can swing by fairly large amounts in the matter of days, so the fact that a losing venture today can become a huge profit opportunity next week keeps people interested. There is no lack of people keen to buy land and equipment if someone really wants out of the business, but we're not that bad off yet.
- nikdaheratik 9y ago
  The other issue is that many of the "boom" prices are based on the spot market price, but the majority of these commodities are actually negotiated through long term contracts that have a steadier income, but much fewer highs and lows. Which is why a multi-year drop can be especially hard for producers, since that's the price that often gets locked in for several seasons.

mapmap 9y ago

A similar oversupply happened right before the Great Depression. Wheat prices were dropping from too much supply partially attributed to newly expanded prairie farming in the US. But these farmers owed fixed costs on their mortgaged land. So to pay their expenses, they plowed up more prairie and grew more wheat. This compounded the supply problem. Eventually, as wheat piled up at railroad depots unable to be sold, farmers left the plowed prairie fallow and the topsoil blew away. Source: The Worst Hard Time by Timothy Egan

StudentStuff 9y ago
Thing is, prices for food never really shot back up massively, instead our govt ended up creating price floors for many commodities, insofar as they would give farmers money if what they produced was sold for less than a certain amount[1]. This led to consolidation, whereby family farmers became much fewer in number, and those that owned and operated larger farms ended up working a 2nd job to cover their living expenses. What used to take a whole family to farm is now nearly entirely automated, causing food prices to continue to decline. 1 - https://en.wikipedia.org/wiki/Agricultural_subsidy#United_States https://en.wikipedia.org/wiki/Agricultural_subsidy#United_St...
- falsedan 9y ago
  > What used to take a whole family to farm is now nearly entirely automated, causing food prices to continue to decline I don't see the immediate causal relationship between these: cars are semi-automatically manufactured, but the price of cars hasn't declined anywhere near as much as grain/commodities.
  - Pyxl101 9y ago
    The quality of vehicles has increased dramatically over that time. There isn't a similar increase in the quality of grain. A vehicle that I purchased roughly ten years ago has operated perfectly fine with half of its scheduled oil changes and very little other maintenance. From an engineering perspective I find that mind-blowing: you buy these machines and they operate flawlessly for years, running for thousands of miles, while performing a complex, mechanical task with many moving parts. It's easy to take for granted how marvelous modern automobiles have become.
    - falsedan 9y ago
      Thanks for explaining how car quality has improved, but I still don't follow your link between automation and price decreases. I feel like your explanation doesn't address the market side of farming, and disregards the huge advances in crop & agricultural science.
      - danmaz74 9y ago
        Not the OP, but the point is that the car you buy today has much more value than a car that was sold 20 years ago at a similar price. So, even if the average price paid for a new car didn't go down, the price for the same car has effectively decreased, thanks to automation.
        pavlov 9y ago
        Also, the regulatory environment has changed. The car you could buy 40 years ago couldn't be sold today because it's unsafe, too polluting, etc.
        falsedan 9y ago
        I still don't see how this relates to farm automation: automation didn't significantly change the price point, it increased production, decreased labor costs and increased equipment/maintenance costs.
dredmorbius 9y ago
The general phenomenon is the "Backward-S Shaped Supply Curve", and yes, I mention the Dust Bowl instance (from Egan via Burns's PBS series) sepecifically. There are others. https://redd.it/53mcxn https://redd.it/53mcxn You'll see this phenomenon any time an economic agent (individual person, labour market, farmer, extractive resource operator) has some inflexible and fixed minimum set of costs to maintain or they will go out of existence, vs. some variable production function or market price structure. It's similar with the general aviation phenomenon of "failure to maintain altitude". Aircraft fly fairly well through air. Performance characteristics through land or water are rather less optimal.

nerdponx 9y ago

That's not why. It's because the US government so aggressively subsidizes corn. This is done at the behest of the Ag lobby, which represents corn-buying conglomerates who love low corn prices.

dogruck 9y ago
Yes. Also, unwanted farming equipment is easy to sell.
- randomdata 9y ago
  As a Canadian corn grower, I'm not sure how the US (or Canadian for that matter) government is subsidizing me growing corn, but the reality is that the prices were still quite strong at the start of the year when we were looking at contracts for the season. I'm very happy with my corn position this year. We may have reevaluate growing corn in the future if the market does dry up (although for crop rotation purposes that is a hard choice to make), but when the market is buying it at a profitable level, why wouldn't we grow it?
  - protomyth 9y ago
    For the US, the subsidy most cited is ethanol subsidy. Might have something to do with the first primary state being Iowa.
    - toomuchtodo 9y ago
      > Might have something to do with the first primary state being Iowa. This is entirely why the ethanol subsidy remains. I have high hopes the electric vehicle movement kills this.
  - thisisit 9y ago
    US government has the farm bill which provides some form of insurance: https://www.washingtonpost.com/news/wonk/wp/2014/01/28/the-950-billion-farm-bill-in-one-chart/ https://www.washingtonpost.com/news/wonk/wp/2014/01/28/the-9... This provides a price insurance for farmers. This year's price was set at: $3.96 per bushel for corn and $10.19 per bushel for soybeans (reference - http://www.wisfarmer.com/story/news/2017/03/08/corn-soybean-prices-set-2017-crop-insurance/98891684/ http://www.wisfarmer.com/story/news/2017/03/08/corn-soybean-...) So with the support prices, unless the yield prices goes below support, people will still grow corn. As how does it affect Canada? For one, Canada will surely be having it's own insurance program. Second, It is a simple arbitrage play, if Canadian supply is cheaper people will buy cheap corn from there and import to US. Curious what price level you would say is unprofitable to grow corn?

randomdata 9y ago

The main reason prices are falling is that we are coming off the biggest commodities boom in history. 2008-2013 saw record setting prices for corn, soybeans, and wheat. Really, things are just returning to normal now that the boom is over. As you would expect, marketing corn is more challenging now, after the boom, but there is still opportunity for money to be made. The thing about these crops is that the market price can swing by fairly large amounts in the matter of days, so the fact that a losing venture today can become a huge profit opportunity next week keeps people interested. There is no lack of people keen to buy land and equipment if someone really wants out of the business, but we're not that bad off yet.

nikdaheratik 9y ago
The other issue is that many of the "boom" prices are based on the spot market price, but the majority of these commodities are actually negotiated through long term contracts that have a steadier income, but much fewer highs and lows. Which is why a multi-year drop can be especially hard for producers, since that's the price that often gets locked in for several seasons.