Farm Economy Suffering

 

Farmers are in a tough spot. Fertilizer prices are spiking and crop prices are not high enough to cover the costs. The bright spots are on the livestock and dairy side with much higher prices and profits. For grain farmers; with a late drought, yields and prices are not high enough to make much money.

Usually, farmers benefit from free markets. The USA usually exports about 1 out of every 3 bushel of soybeans produced. A lot of corn is used to make ethanol for fuel but energy prices are moderating and coming down. Farmers need to export excess grain to stay in business. When grain exports decline, grain farm income tends to decline. USA grain farmers are losing market share to other countries or for political purposes (countries like China) are not buying our grain commodities. Even worse, many countries (especially European markets) have agricultural subsidies that prevent our grain from being sold and exported overseas.

The average subsidy overseas is about 1.3% of Gross National Product (GNP). Average USA agricultural subsidies are about .5% of GDP. Chinas agricultural subsidy is 1.6% or 3X the USA agricultural subsidy. That makes it hard for USA grain farmers to compete. World competition for agricultural commodities is tough. The USA no longer dominates like it did in the past.

The USA dominates in 10 ag commodities; mainly corn, sorghum, blueberries, beef, turkeys, almonds, and cheese. China dominates in 49 commodities; including pork, cotton, wheat, peanuts, and honey. India dominates in 18 commodities including rice and milk. Brazil dominates in 6 grain commodities including soybeans, coffee, oranges, and sugar cane. Brazil is close to overtaking the USA in corn and has already surpassed the USA in cotton. Many of these agricultural commodities were dominated by the USA just a few years ago. Even scarier, the USA became a net importer of food in 2020. The American consumer buys a lot of fruits, vegetables, coffee, you name it from oversea commodity markets.

Brazil is making even more land available free for farming. They have converted roughly 25% to 30% of their rain forest into agricultural land. Almost 300,000 new farms are created each year in the Brazil. Their goal is to increase from about 120 million acres now to 300 million acres in the next 30 years. Brazil is also making major deals with the Middle East, India, and Asian countries like China and Indonesia. China and India have huge populations and are huge buyers of agricultural commodities to feed their growing populations.

China is investing money into Brazil’s infrastructure to get agricultural commodities to ports quicker. It use to take 3 days to move commodities from the interior part of Brazil to Brazilian ports. Today that number is closer to 1 day. Highways, bridges, and railroads are being constructed to mover agricultural commodities quicker. That also includes more storge facilities. A long-term goal of Brazil is to start using more agricultural commodities inside Brazil. They want to use there grain for pork, beef, and produce more milk as finished products for export.

While Brazil and other countries are increasing agricultural use of land for ag production, the USA is decreasing ours. More and more USA ag land is used for windmills, solar production, and for development for homes, towns, and cities. It is much easier to build on prime flat productive farm land than it is to convert hilly, rocky, or dry desert land into development. In 2017, USA total cropland acreage reached its lowest level (390 million acres) since 1945. Unfortunately, that trend is continuing.

Farming has become now a high-risk low reward industry in the USA. It is getting harder and harder to make a profit and stay in business. With high foreign subsidies and free land in Brazil, USA farmers are struggling and they may need a helping hand from our government. Usually, free markets are the best way to pick winners and losers, however; when foreign countries (especially China and Brazil) have their hand on the scale, it hard to compete fairly.

Farming is still mainly a local business. The land is fixed and stays in the same place. Farmers support many local businesses; so when farmers thrive, so does the local economy. The European Union has kept their subsidies extremely high since World War II. They do not want to take a chance of starving and suffering like they did during the war. What would happen if our food imports from other countries were closed down. Maybe it is time for the USA to rethink some of our Ag policies to help the American farmer survive.

Adapted from an article by Eddie Martin.