Grain prices have been in free fall since the Covid commodity boom ended, forcing some growers to consider difficult changes
By Kirk Maltais of The WSJ. Excerpts:
"The U.S. farm belt is headed for a bumper crop. Few farmers are celebrating, though.
Grain prices, under pressure since the Covid commodity boom crested, have fallen further in 2024. Rainfall has been ample across farm country for the first time in years, staving off the drought that has plagued the central U.S. and putting Midwestern corn and soybean harvests on track to set records."
"Prices for corn and soybeans were rangebound in the second half of the 2010s, weighing on farm returns. The record-high prices in 2021 and 2022 gave farmers a boost, but momentum has once again turned against them."
"Corn and soybeans are both trading at levels last seen in 2020. The producer-price index for corn, reflecting the change in the selling prices received by domestic producers for their output, has halved since hitting a recent high two years ago, thanks in part to strong production in Brazil.
[farmer Steve] Nightingale is in the process of selling leftover crops from last year to make room for what he expects to be a bountiful harvest. But at his local grain elevator, he recently got $3.69 a bushel for last year’s corn—14% below the $4.30 he needs to break even."
"In February, the USDA forecast that net farm incomes would drop by a quarter this year. Economists at the University of Illinois say farmers in the state are likely to lose as much as $118 per acre of corn and $81 an acre for soybeans. The pain could be even worse if prices don’t rebound.
To be sure, weather is unpredictable, and any major event could reset what the economics look like for farmers. Any geopolitical volatility affecting the U.S. or a major trading partner such as China—that increasingly appears to be decoupling from reliance on U.S. agricultural exports—could spark a surge in grain prices.
But that aside, the growing presence of Brazil on the world agricultural market and the steady output of Russia are expected to keep pressure on prices and on U.S. farmers.
“Between Brazil and Russia, they’re producing grain at a rate that is more than the world will ever need,” said Rob Fox, lead economist with agricultural lender CoBank’s research department. “The long-term picture looks not great.”
The pain facing farmers is ironic because few have seen such perfect growing conditions in an age that is coming to be synonymous with extreme weather events and other disasters."
This article basically says that supply shifted to the right. This led to a big price drop because demand for farm products is often inelastic (which usually means a fairly steep demand line). Price falls alot more than quantity rises, revenue falls. Demand for food can be inelastic because we can only eat so much. Even if food were free, most of might eat a little bit more but not much.
In the graph below, which comes from Economics Help.org, we can see that price falls much more than quantity rises. See What causes price fluctuations in agricultural markets? which discusses, among other things, inelastic demand.
Before supply increases in the graph below, total revenue for farmers would have been 700 = 350*20. But afterwards, revenue is just 440 = 200*22. This might be the situation that ADM is in right now.
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