No Simple Fix To Low Farm Prices

Mar 2, 2017

Farming and ranching operations are complex businesses.  Unlike factories that produce consumer goods, which can ramp up or scale down production quickly, based upon demand, farmer require months or years to change the type or quantity of crops or livestock they produce.

 

First, agricultural production usually involves a lengthy time lag between the decision to grow, for example winter wheat, alfalfa hay or corn for grain.  Wheat planted in September won't be harvested until July or August of the following year.  Alfalfa planted in May won't be in full production until June of the next year.  Corn planted in April will be harvested in October or November.  Livestock production is often even more complex, for example, when  ranchers decide to hold back six month old heifers in the fall to add to their herds, they don't see income from that heifer for two years. 

 

Second, investments for agricultural machinery to till the soil, plant and harvest crops are often specific to a particular crop, and represent tens of thousands of dollars investment by farmers. For example, a combine head that is used to harvest small grain does not work to harvest corn, but a corn head may cost over $100,000.  

 

A third factor is that food has low price elasticity. Our total consumption of food changes very little based upon price.   While we may buy beef instead of chicken when beef prices are low, the total quantity of beef we will eat won't vary greatly from the amount of chicken we will eat if the price of chicken fits out budget better than does beef.  While we can wait to buy a new cell phone until the price fits our budget, we can't wait out lower food prices before we buy food, because we might starve to death before the price comes down. 

 

 

Since the 1930s, farm policy in the U. S. has attempted to level out the peaks and valleys of farm commodity prices. The balance between what farmers receive for what they produce, and what consumers pay for their food is always of concern when a new Farm Bill is crafted.

 

When the 2014 Farm Bill was debated, it was assumed that commodity prices would not drop to the levels that we have seen for the past two years, which are at or below cost of production for most farmers and ranchers. As Congress begins crafting the 2018 Bill, financial stress in farm country will likely be a major consideration for legislators to consider. Hopefully, they won’t settle on simple solutions for complex problems.