Nothing Cures Low Prices Like…..Crop Rotations??

It is certainly not glamorous and it surely isn’t very sexy, but it just may be what could be the safest and permanent cure to low crop prices and help to spread out the environmental risks associated with heavy dependency on just a few crops for farm revenue and a subsidy program that by design concentrates farming businesses.

For those readers who are intimately aware of farming issues, I realize that stretching out crop rotations to four or more years can be difficult for certain types of farms.  Dairy, poultry, and hog operations come to mind.  Farms with higher animal populations tend to have capital budgeted toward animals, equipment, and buildings and they cannot afford to have the land base that allows longer cropping rotations.   Furthermore, transportation of manure can become another issue when transport can be upwards of 20 miles one way.

What about grain farms?

The grain farmer tends to not have as many revenue options.  Some farms have been a corn only type of business.  Others will be a corn and soybean program with maybe wheat or some other grain in between.   Just two generations ago, it was not uncommon for a typical farm[1] to have a four-year rotation that consisted of corn, oats, and some sort of hay crop.  Soybeans came into the mix as our markets became more global and soybean breeding improved.  What was a four or even five-year crop rotation became three years.  Today, that has shrunk to two years or no crop rotation.  Every year or every other year the grain farmer relies on the price of one item to make or break an entire farming operation that possibly affects up to several thousand acres.  We don’t even have a basket to put all of our eggs in when we rely on one crop to survive.

Farming is Messy.

Farming is a messy business.  It deals with so many variables that we can’t begin to predict how it will end this year let alone next year.  Because of that farmers do need some sort of protection from the rest of us.  Sure, farm programs cost money…. a lot of it.  However, relatively speaking, it is not that much when you consider what we get in return.  Have you looked at your food bill lately[2]?  It’s cheap when compared to every other nation on the planet[3].  However, that does not mean we can afford to keep doing it the way we have been doing it for the past 60 years.  Like I said, farming is messy.

Farming deals in living systems.

Farmers and those who supply them are a lot like doctors in that they deal with living organisms.  Calves are born, sows give birth, and a grain farmer earnestly studies the weather, soil, and forecasts to determine the optimum planting time for that living organism we call a seed to be put into that hostile environment called “soil”.  They hope that it can sprout and grow a crop that can provide feed or income for another year.  Do you work in a profession that makes its living from the successful interaction with living creatures every day?  Sadly, we have lost touch with that special bond that occurs when you help deliver a calf or reach down into the soil, dig it up and smell it to see how healthy it is.  Farming and those who supply them, cannot afford to work in a business environment that is constantly changing.  Consistency is key for slow, thoughtful change.  However, as we have seen, our living systems are not doing so well at adjusting to our current methods of farming.  Nutrient runoff, soil erosion, and certain species shifts in pests as well as beneficial species on land and water, are showing signs of prolonged stress and inability to adapt.

It’s time to rotate.

Candidly, farming as it is currently structured in the United States today, is juxtaposed to what other parts of our economy need.  We have a farming economy built around a small basket of products.  The United States and Brazil account for 80% of all soybean exports in the world and our second largest product we sell to China.[4],[5]  Is it time to rotate away from some of that?  Rotations spread out risk.  They spread out risk to environment and risk to adverse economic environments.  We must find ways to incentivize longer rotations with suitable alternative crops and the investments that will be needed.    Crop rotations are a slow process, that builds stability for the farm economy and for the soil[6].   The investments will be substantial and take several years to begin to see results.  The farming community is caught in an economic pinch with 2017 being a key year to see if we are indeed headed into a farm recession[7],[8],[9].  Perhaps we can forgo any new programs and simply emphasize ones that are already in place.  In fact, I know we can for there have been programs in place to encourage alternative crops for years.  Furthermore, monies not used due to less commodity subsidization can be diverted to help support longer field rotation programs.  With the 4R initiative and the renaissance that is emerging about soil health, maybe it’s time to begin to structure some of our short rotation corn and soybean acres to include regionally focused crop rotation partners that will spur local and regional based markets.

Rotations help to bring vitality back into a local farming community.

Indeed, many of these communities are in a negative growth situation.  While tax revenues increase in other areas, the smaller, rural towns are experiencing a trend of negative tax revenues[10].  Who will pay to keep the lights on in city hall?  It is a way of investing money into new equipment and new methods with the local shops and homes of farm laborers.  It also can be a great support to the local banks that according to the University of Nebraska, are evaporating away[11].  Meanwhile, it helps to insulate farmers and farm income from frequent and strong year over year currency swings which they have absolutely no control over and their crop income becomes collateral damage in some greater currency imbalance.

Perhaps the most troubling challenge of all is the derivative effect that currency valuations have on crop prices.  Candidly, this leaves many farmers, and our nations’ food security, in a precarious situation.  Currency markets have a strong impact on the export market.  Work out of the Federal Reserve Bank of Kansas City shows that land values increased by as much as 30% due to strong export and ethanol markets that simultaneously impacted the grain markets and therefore caused the land to become more valuable[12].  Such rapid variances are very hard to manage.   Dean Heffta of Water Street Solutions, in his BASF Grow Smart University webinar entitled, “Monetary Policy and Currency Impact on Agriculture”, the Federal Reserve is basically charged with two primary tasks.  First, manage inflation at a level of around 2% and, secondly, to promote job creation.[13]  This means that we will need to perhaps our currency at a value like what we see today to keep money flowing into our economy from other nations.  For point of reference, the currency values we see today are like what we had back in the early 2000’s, those were times when ag exports suffered from a strong dollar[14].  Divergent monetary policies spark currency reactions from other nations and those currency reactions also strongly affect the fertilizer markets and less so pesticides and seed.

Where is agriculture going to be in the years to come?  Look around and you will see, mergers and acquisitions point to a desire to be prepared in a defensive posture for uncertainty and instability that more likely than not is going to come.  The traditional subsidy programs we are used to are mostly geared toward a stable currency environment when the U.S. dollar was more prominent.  Those days have changed and those subsidies many not be as appropriate considering current events and the biological impact that short rotations have[15].  A farmer can begin to spread out risk and stabilize farm income by having multiple crops to take to market.  The sort cropping rotations, consumer demands, world currency markets, and a nation in flux all point to a need for farming to place safeguards into place that are intrinsically based on the crops produced.  Now is the time to spread out rotations.

[1] https://medium.com/@AgEverything/holistic-farming-for-resource-management-78397c822770#.kgcz9zckc

[2] http://public.tableau.com/views/TrendsinUSfoodexpenditures/U_S_SpendingTrendsStory?:embed=y&:display_count=yes&:showTabs=y&:showVizHome=no

[3] http://wsm.wsu.edu/researcher/wsmaug11_billions.pdf

[4] https://www.kansascityfed.org/research/agriculture/agoutlook/articles/headwinds-ag-outlook-remain-despite-strength-in-exports

[5] https://www.census.gov/newsroom/press-releases/2017/cb17-tps08.html

[6] https://dl.sciencesocieties.org/publications/cns/articles/0/0/cs2017.50.0108/?_cldee=cHJvZml0YWJsZWdyb3d0aHNlcnZpY2VzQGdtYWlsLmNvbQ%3D%3D&recipientid=contact-f4efca208d33db1197e1001279d6310b-27d7be9e2de64ce6b6186b30d6d8087d&esid=77df8ef1-1eea-e611-946c-0050568a4377

[7] https://www.kansascityfed.org/research/indicatorsdata/agcreditsurvey/articles/2016/11-10-2016/financial%20stress%20in%20farm%20sector%20shows%20slow%20but%20steady%20increase

[8] https://www.kansascityfed.org/research/indicatorsdata/agfinancedatabook/articles/2017/01-20-2017/ag-finance-dbk-01-20-2017

[9] http://www.progressivecattle.com/news/market-reports/7690-could-this-be-the-80s-farm-crisis-all-over-again

[10] http://agecon.unl.edu/cornhusker-economics/2016/how-have-retail-sales-changed-across-nebraska-counties-since-1990

[11] http://agecon.unl.edu/cornhusker-economics/2017/small-community-bank-changes

[12] https://www.kansascityfed.org/~/media/files/publicat/econrev/econrevarchive/2016/4q16cowley.pdf

[13] https://basflms.publicishawkeye.com/my/

[14] http://www.macrotrends.net/1329/us-dollar-index-historical-chart

[15] https://youtu.be/eGxjcxVMbsg

Advertisements

One thought on “Nothing Cures Low Prices Like…..Crop Rotations??

  1. Pingback: Fully Separate but Fully United(hopefully) | Profitable Growth Services, LLC

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s