Article From Reuter's: Rent walkouts point to strains in U.S. farm economy

[oldpilgrim]

"Across the U.S. Midwest, the plunge in grain prices to near four-year lows"

I'm not a farmer but I know a lot of people here and in VT who are, and it's not an easy profession.

It seems like the average home based farmers are purposefully being squeezed out by the 'mega' farms and the govt.

A few years back, cattle and dairy farms were made 'offers they can't refuse' to sell/kill all their cattle and promise not to go back into the business for X years in return for a whole lot of cash. The offers were too good to refuse. There were many farms within just a few miles of me that did it.

That being said, the 'plunges' in grain prices never seem to be reflected in the grocery stores. I wonder why

 

[newbury]

The speculative bubble in farm land prices will deflate. Slowing AG sales will also deflate the prices of used and new equipment. Downside: weak hands will get knocked out of the market, which is to say there will be even less mom and pop operators unless they can control their costs and focus on customer retention.

Worse, we will also lose smaller attachment OEMs, that could in the long run lead to less competition and higher prices.

Still even worse, is that rural farming communities diversity of operators will decline as all but the wealthiest operators buy up those operations that are knocked out of the business.

The up side: during periods of decline is when the best innovation takes place!

Another potential upside is the deflation of equipment prices will let me buy more equipment.

There have been numerous studies that have attempted to quantify the effects of the ethanol mandate on the price of corn. Unfortunately, those studies have not reached a consensus. Here's a discussion that suggests that the direction of causality can at times be from corn prices to ethanol prices rather than vice-versa.

Ethanol Prices Drive Corn Prices, Right? | farmdocdaily.illinois.edu

Steve

Coincidentally that study was PUBLISHED just after the price dropped like a rock.US Corn Farm Price Received

 

[smstonypoint]

Fair enough.

I'm getting far afield from the topic, and economics, but some of this renting and corporate farm ownership has roots in the old 'capital versus labor' situation. 'Capital' attains it's advantages (privilege) through special interests and political maneuvering while many think it's abhorrent for 'labor'--via unions or progressive populism--to seek similar advantages.

<snip>

Balancing the influences of capital and labor is always going to be difficult but historically a reasonable balance seems to produce the best overall results. As it applies to farmlands, are we moving to a corporate landed aristocracy that has many similarities to the original European titled aristocracy that grew out of feudalism? If so, why would we do that?

Many oppose rent-seeking, whether by corporations, unions, or other politically powerful special interest groups.

I don't think you need to worry about a "corporate landed aristocracy" anytime soon.

Most U.S. farms are family farms under the FAO definition -- 86.1 percent of farms, accounting for 47.4 percent of U.S. farm production, are owned and operated by a family, with the principal operator and spouse providing most of the labor. Another 11.5 percent of U.S. farms, with 38.4 percent of production, are owned and operated by a family, but rely extensively on labor provided by hired workers, contract workers, and other operators and their families, meaning they are family farms under the ERS but not the FAO definition. The remaining U.S. farms -- those that are not family owned and operated -- number about 53,000, or 2.4 percent of all U.S. farms, and account for 15 percent of U.S. farm production. These are nonfamily farms under the ERS definition.

There are many kinds of nonfamily farms. Few are large corporations with dispersed ownership and multiple levels of management -- that organizational form, so common in the broader U.S. economy, is rare in agriculture. Like family farms, most nonfamily farms are smaller half have less than $35,000 in sales but most nonfamily farm production comes from the 10 percent that have annual sales of at least $1 million. Those farms collectively accounted for $42 billion in agricultural production in 2011, or 93 percent of all U.S. nonfamily farm production. These large nonfamily farms are also a diverse group. Partnerships, with small numbers of unrelated partners, account for 28 percent of large nonfamily farm production, while another 10 percent is from farms organized as sole proprietorships (one owner, who did not operate the farm).

Just under half of large nonfamily farm production --20 billion-- came from nonfamily farms organized as corporations. However, most of these corporate farms have no more than 10 shareholders, and are thus likely to be tightly held partnerships that have incorporated for tax and management purposes. Some large corporations with dispersed stockholdings are active in farming, but not many. Most large diversified corporations that exercise influence in agriculture do so through their role as input suppliers, commodity purchasers, and coordinators of production. Not only is U.S. agriculture dominated by family farms, but production by nonfamily farms is dominated by organizations with a small and tightly knit group of owners.

USDA ERS - Family Farming in the United States

Steve

 

[smstonypoint]

That being said, the 'plunges' in grain prices never seem to be reflected in the grocery stores. I wonder why

And dramatic increases in grain prices never seem to the reflected in the grocery stores.

A couple of factors are at work here.

Farmers on average receive less than 16 cents of the dollar that we spend on food. That percentage varies according to the costs incurred in shipping, storing, processing, wholesaling, and retailing the various farm products. That percentage tends to be lower for grain products. According to the USDA, the values are 7 cents for bread and 1 cent for cereal. Farmer's Share

Processors and merchants may reduce their margins when their input costs increase in anticipation of making up the difference when those input costs decrease.

Steve

 

[dave1949]

Steve:

Most U.S. farms are family farms under the FAO definition -- 86.1 percent of farms, accounting for 47.4 percent of U.S. farm production, are owned and operated by a family, with the principal operator and spouse providing most of the labor. Another 11.5 percent of U.S. farms, with 38.4 percent of production, are owned and operated by a family, but rely extensively on labor provided by hired workers, contract workers, and other operators and their families, meaning they are family farms under the ERS but not the FAO definition.

That's more farming close to the land (47.4% + 38.4% of total production) than I would have guessed.

I knew I should have asked an Economist.

 

[smstonypoint]

the price of groceries have gone up as the food quality has gone down.

Your evidence that food quality has gone down?

Steve

 

[smstonypoint]

I knew I should have asked an Economist.

Something I wish politicians would do.

Steve

 

[smstonypoint]

Investors should not be able to buy huge amounts of any type of farm commodity without taking delivery. If that rule were enforced the crop prices would stabilize greatly.

<snip>

Less risk. Less stress.

I disagree with the first statement. A minuscule proportion of futures contracts are actually settled by delivery, either by hedgers or speculators.

Due to vagaries of supply and demand, commodity prices are going to vary regardless of whether there are futures market for the commodities. A futures market allows hedgers (farmers, elevators, processors, etc.) to transfer their price-level risks to speculators who are willing to assume that risk. Less risk. Less stress.

There used to be a futures market for onions, but it was outlawed in the 1950s due to allegations of market manipulation by speculators. There is a futures market for oil.

From CARPE DIEM: What Can Onions Teach Us About Oil Prices?

Steve

 

[dave1949]

Your evidence that food quality has gone down?

Steve

Corn syrup and sugar, it's everywhere. It's not good for people to eat all that sugar. If you read ingredient labels, corn syrup/sweetener shows up in the darnedest places, like canned pizza sauce.

Nitrogen filled fresh meat packages such as ground beef, pork and turkey, never looks rotten even when it is.

Caramel coloring a potential carcinogen:
Popular soda ingredient, caramel color, poses cancer risk to consumers -- ScienceDaily

Highly processed foods lead to food addiction and obesity:
Want pizza, chocolate, French fries? Highly processed foods linked to addictive eating -- ScienceDaily

 

[ovrszd]

I disagree with the first statement. A minuscule proportion of futures contracts are actually settled by delivery, either by hedgers or speculators.

We'll simply agree to disagree. But your second sentence, I'll agree with. And it makes my point. If I buy a bushel of grain, I should be forced to take delivery. If I sell a bushel of grain I should be forced to deliver. If that were true in today's markets you would see stability. The amount of stability can be discussed. But no doubt stability would increase.