America’s position as “Breadbasket of the World” is being eroded by the growing strength of rivals such as Canada, Australia, the former Soviet Union and China. As yields continue to rise along with commodity prices, America’s position will continue to be undermined. The best way to understand America’s place in global agriculture market is to examine the anticipated 2011 crop planting of the ten largest crops US farmers produce.
Prices of many of the world’s most widely planted crops have nearly doubled over the past year. Cotton prices have risen as high as 150% over that period. The price of corn has risen 122%. The price of winter wheat is up 75%. These three crops and a few others are moving to dominate global agricultural production and the consumption of goods. Increased demand for them also is limiting the availability of the land which would otherwise be used for other crops. This largely determines the production of meat and the clothing demand of many of the world’s people. These crops also provide some of the crucial components of alternative energy. And, the world is running low on many of these critical commodities.
The question of global warming aside, there have been great droughts in the farmlands of much of Russia and China, and heavy snow and flooding in Canada and parts of Australia. The weather has always been one of the most critical forces affecting agricultural production. Scientists and farmers say the changes in the weather, especially changes that have hurt crop yield, have generally taken a turn for the worse. Under-developed countries continue to have challenges to maintain the most modest yield from their farms. Much of that is due to poor land management, lack of irrigation, and spoilage as commodities are stored or moved to market. The weather and poverty have caused the world to lean more on the United States as a supplier of grains recently. This has put more upward pressure on prices.
American farmers are excellent businessmen. For example, they will sacrifice a large portion of their soybean harvest to make room to grow more corn, which is more profitable. This should push down the prices of expensive commodities as supply increases. While they do so as much as they are able, U.S. farmers cannot simply switch tens of millions of acres from one crop to another at the drop of a hat. American corn and wheat production represents an substantial portion of the world’s supply. However, crop production in the rest of the world has been hurt so badly in many regions that even increases in US output has not pushed global prices down.
In order to understand how American farmers are managing their land, we looked at the U.S. Department of Agriculture’s perspective planting report for 2011. This report lists how many acres of each farmers intend to plan this year It allowed us to see which crops were increasing in popularity and which were decreasing. For the purposes of drawing a complete picture of the status of each of these crops, 24/7 used agricultural commodity data provided by Capital IQ, as well as import, export, and production values from the USDA’s Foreign Agriculture Service. 24/7 looked at the ten largest crops by acreage planted in the United States. These are, in order of increasing production: oats, barley, rice, sorghum, cotton, spring wheat, winter wheat, hay, soybeans, and corn.
Our conclusions are not going to give much solace to investors and consumers concerned about high prices. Overall production of most crops is not likely to increase much based on world totals. Weather is too disruptive, production in Third World counties will stay anemic, and U.S. farmers are only willing to gamble so much of their fortunes on any one crop. The rise and fall in commodities prices has taught a lesson that forecasts are difficult and often useless.
The second is that food prices will continue to rise. The statement may seem obvious, but it is not. Some economists believe that a fall in demand will bring down the price of wheat and corn. That assumes the number of mouths to feed around the world will drop and so will the need for commodities to advance alternative fuels. The UN is worried that more and more people will be driven into poverty around the world because of the high price of food. It would be nice to think that the UN could be wrong, but the data examined by 24/7 says otherwise.