Tuesday, February 07, 2012

Blast from the Past

Hat tip Grist: Bloomberg reports on the big planting plans for 2012, including this quote
“There is unlikely to be any ground that won’t be planted this year,” said Todd Wachtel, a 40 year-old who farms about 5,700 acres in Altamont, Illinois, and plans to expand his corn fields by 21 percent when seeding begins in early April. “Farmers know that they have to plant more when prices are high because they may not last.”
Of course, if every farmer plants more when the prices are high she guarantees the prices will fall.  It's called the law of supply and demand. Farm programs used to have a supply management feature, which enabled farmers to act as a cartel.  Without government intervention, there's no way for an individual farmer to have the market power to adjust supply.  The only alternative to such intervention is for the industry to restructure itself with vertical integration, meaning a handful of companies acquire power over the supply chain and thereby can informally coordinate supply and prices.   That's what's happened in the US to poultry, eggs, and hogs, and most recently with tobacco.

If corn prices are going to drop in 2012, what happens to the cash rent leases and the mortgaged land sales?  The only thing keeping us from repeating the crash of the early 80's is the fact farmers aren't nearly as indebted now as then.

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