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A Perfect Storm

Current elements in the economy and the agricultural industry have the makings for a “perfect storm.” Just last week I was asked to do an interview pertaining to the current price situation for the beef industry. As I did the interview I realized what a unique set circumstances we have. In short, do not be surprised when you do not see ranchers and farmers jumping for joy over the currently high market prices. We are in very uncertain times.

Total beef cattle numbers are at a historic low. Total beef production is up. Market prices are near historic levels. Corn, soybean, cotton and fuel are at near historic highs. Hay prices are strong. In summary, while we are receiving great prices for our product, we are also encountering the highest input costs we have ever faced, causing our net income to decrease. Ironic, we are getting paid the best return ever and yet, are struggling to make ends meet due to the cost of production.

To make the situation even more strenuous, supply for feedstuffs is highly questionable. Total projected acres to be planted this year are looking to be nearly unchanged from last year. There is a high likelihood of bad flooding in the northern Mississippi, drought conditions through portions of the country and delayed planting in other regions due to a very wet spring. With supply at or slightly lower than last year, fuel prices continuing to rise and demand not expected to change, we have the makings for a “Perfect Storm.”

How this scenario will play out remains to be seen. However, as Bob Young, an economist from American Farm Bureau, said in a presentation last week, “the face of agriculture is in for a major change this year.” I could not agree more. Barring a major drop in the cost of oil, we could experience a farm and ranch sell off, not seen since the 80’s. A further transition to consolidation is likely in order. I pray that does not happen, but the future only holds a blur of question marks, as I see it.

The link to my interview can be found here: http://www.fb.org/index.php?fuseaction=newsroom.newsclip&id=69560

  1. March 1, 2011 at 10:25 AM

    Very well stated! I am from SE Nebraska, work in SW Iowa in the seed corn industry and quite frankly, too many farmers are ignoring all the signs you pointed too! In this region we are experiencing what has to be the least amount of farm diversification per operation, ever. The prime culprit is, I fear, the combination of complacency and input costs. Well written, sir! Thanks!
    Austin

  2. March 1, 2011 at 10:35 AM

    Your exactly right about these times in agriculture. With price volitility in the past few years makes projecting impossible.
    I hope we don’t see sell off of farms and ranches or a return to debtlevels of the ’80’s.

  3. March 1, 2011 at 10:35 AM

    In some ways it reminds me of the last time grain prices spiked a few years ago. Our neighbors were receiving record high prices and incomes spiked but the costs of every inputs spiked even more and so their net or bottom line was actually worse.

    Scary/interesting times.

  4. March 4, 2011 at 7:28 PM

    We’ve attended some marketing meetings lately and everyone agrees we don’t want to repeat the aftermath of 2008 again. Unfortunately, if the Middle East doesn’t settle down everything is just going to follow the price of oil upward. I’m hoping for bumper crops this year for all crops. Maybe that will bring some stability to the market We’ve certainly got the resources in this country to be energy independent, and it seems like we are getting some really good reasons from across the globe lately on why we should be using them.

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