The peculiar difficulties associated with farming in America have created a unique conundrum: rising production and falling prices.
“We call this the irreversible supply curve,” explains agriculture economist Chris Hurt. “You get a period of higher prices where there becomes a feeling among producers that it’s a new era, and they’re willing to make big investments. It is the big fixed cost once you have invested in [new land or equipment] and you can’t reverse it.”
Here’s an example: a farmer purchases a new field to grow soybeans during a period in which the price of soybeans is high. By the time his investment has matured, supply is down or prices have dropped.
But he can’t afford not to plant the field.
“Global markets are just flooded,” complains Texas farmer Rodney Schronk. “It’s one of those situations where you choose what you’re going to lose [the] least money on. We still have to plant those acres. We have to eat. If everything works perfectly…we still can make a small profit sometimes.”
Over the past four years, the declining prices of wheat and corn have noticeably dented the economies of more than 20 states.
Farmers responded to the glut by planting specialty crops like white corn, but so many farmers did this that farmers are now being forced to sell those specialty crops at a loss.
Five years ago, a bushel of white corn could garner as much as $1 more than a bushel of yellow corn. Now, the difference is just 5 cents.
“As acres devoted to varieties such as white corn, organic, and non-genetically modified corn continue to rise, the benefits have shrunk for farmers switching to such strains,” reports Reuters.
Unlike other industries, it can take years for a farmer to respond to supply and demand. And by the time he has made thousands of dollars’ worth of changes, so have his competitors.
“If there’s a demand for watches or electronics, it’s easier for a manufacturing plant to add another shift…They can add more almost immediately. You can’t go to a farmer and tell him, ‘We need your cows to start having more babies.’ It takes time,” says University of Kentucky Agriculture Professor Tim Woods.
To make matters worse, farmers in America do not work together.
“The nation’s vast network of farmers is too disjointed to cooperate on production cuts,” reports the Wall Street Journal. This lack of cohesion exacerbates supply issues and makes it nearly impossible to convince farmers to slow production during periods when prices are low.
“Those kinds of voluntary…destruction of production never work,” explains Texas A&M economist David Anderson. “You never have enough participation, and you have very mixed feelings among farmers about whether that’s the right thing to do.”
Author’s Note: Many people want to send our extra food to starving people in other countries, but it doesn’t work that way. Lack of food is generally an economic/population problem, not a production problem. In other words, countries without enough food need to learn how to be productive enough to feed themselves. You can’t do this from the outside.
It’s like the old adage, “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.”
If the US were to send all its extra food to another country, without also teaching that country how to increase production on its own, we would just be producing more hungry people. And that population would eventually outgrow our ability to sustain it. This was predicted by Thomas Malthus three hundred years ago and still has merit today.