I just drove from Milwaukee to just south of Minneapolis and back, and from mid-Wisconsin on, there was more corn planted than I ever remember. In southern Minnesota it seemed like it was at least 80% of the fields. I’ve been driving around these parts for many years, off and on back to the 50s. I don’t know agricultural economics; I’m a city guy. So what’s up? Is every farmer betting on ethanol? Or High Fructose Corn Syrup? What drove the decisions farmers made last spring?
Check out the writings of Michael Pollan.
Pretty much what you mentioned.
- The demand for High Fructose Corn Syrup is pretty steady.
- In the USA, the demand for corn-fed beef (and pork and chicken and …) is also steady.
- On top of that is this new market for ethanol.
So planting corn seems less risky than other crops – it looks like the market demand for corn will remain high, thus the price should hold up.
Farming as an occupation seems almost like high-stakes gambling. You decide in the winter what you’re going to plant, order the seeds, plow, plant, cultivate all summer and then at harvest time, hope the price is high enough to cover your costs and maybe even makes some profit for the year. And if all your neighbors chose to plant the same crop, and had good harvests, then there’s a surplus, and prices are too low. So you do best if your neighbors chose to plant the ‘wrong’ crop, or if their fields produced a poor harvest.
I admire the farmers who produce the food we eat, but I would never want to make my living that way!
My understanding is there’s little to no risk planting corn given the heavy subsidies. You also might check out this movie.
Okay, I buy all that, but what about the demand for soybeans, which not to long ago we would export to Japan, or alfalfa, which was as good a feed as corn? And even wheat, which wasn’t a big part of southeastern Minnesota farms, but was still part of the mix in the 50s and early 60s?
Farming IS basically high-stakes gambling. In a typical five-year span, a farmer will make big money one year, lose big one year and pretty much break even the other three. A typical farmer’s best hope for long-term success is that the one year of good profits more than makes up for the one year of big losses.
Plenty of soybeans are still out there. The problem with soybeans is that they’re a more expensive crop to plant and harvest, and pose a somewhat higher risk. Also, there are a lot of other countries that grow soybeans, so the market is more volatile. All things considered, corn is a somewhat safer bet.
Wheat is still out there, as well. It’s more of a low-risk, low-reward crop, that does better in colder, drier climates than corn. Wheat’s very big in places like Canada and the Great Plains, where the growing season is either too short or too dry for corn and soybeans.
I was actually noticing that most of the fields that are usually corn around here (southern Ohio) seem to be soybeans this year.
Typically, corn is rotated with soybeans to keep the soil from deteriorating (losing essential nutrients needed to grow corn).
Well, I wish this corn boom would translate into more corn tortillas already.
That’s how all that corn ended up on my pizza.
Your observations are wrong.
Here’s a possible explanation for the OP’s observation:
I passed through the same area in the summer of 2007. About all I saw was corn. Maybe soybeans were planted last year and this year they are back to corn. Anybody familiar with what the area looked like in the summer of 2008?
Corn has always been a big crop in the Dairy areas of Wisconsin. Cows are feed hay and corn. I’m not claiming there isn’t a lot of corn. It’s just that there wasn’t a large increase in acreage planted to corn this year. There was a small decline in acreage planted to corn.
The Farm Bill of 2001? “decoupled” farm payments from planted acreage. A farmer can plant corn, soybeans, wheat, grass, whatever and the payment, if any, to that farm will stay the same regardless of what’s actually planted.
Can’t a farmer take a short position on a futures contract, and thereby avoid the risk of a price change?
They could, but normally a farmer will contract some or all his crop, locking in a price. That too is a gamble but less of a gamble than playing the futures market.