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Thursday, Aug. 21, 2014

Despite Risks, Farmers Persist

Posted Friday, November 25, 2011, at 1:21 PM

Considering how much risk U.S. farmers are willing to accept in running their businesses, their efforts are indeed worthy of praise.

Perhaps the greatest source of uncertainty in a farmer's operation is the weather. Adequate rain must fall throughout the spring and summer, yet avoid too much rain in the spring and fall. Soil temperatures must warm up before planting can begin, and an early frost is always a threat at the end of the growing season. Detrimental weather events eat away at yields, and therefore profit margins.

Weeds and pests (both insects and plant diseases) stand ready to attack crops, thereby reducing yields dramatically if left uncontrolled. The western corn root worm, for example, tunnels into roots and causes defects in plant growth. Its larvae alone suck $3 billion out of farmers' wallets per year on average.

Costs of production, including seed, fertilizer, pesticides, diesel fuel, taxes, borrowing costs, insurance, and rents can rise independently of the price of crops. For example, cash rents for cropland in some of the most productive districts of Western Iowa have risen as much as 21% this year. This is despite the fact that corn, wheat, and bean prices are lower on the year.

Despite all of these challenges, grain yields have increased dramatically since the 1930's. For example, in 1935, the average corn yield was only 35 bushels per acre. By 2009, the best year on record so far, yields had risen to 165 bushel/acre -- an increase of over 400%.

As most Americans relax this weekend with a cornucopia of food in the refrigerator, they should give thanks to the farmers who make our abundance available.

U.S. Food Prices Low?

With frozen turkey prices up more than 50% compared to a decade ago, it may be tempting to draw the conclusion that food prices in the U.S. have gotten out of control. However, data on food prices world-wide indicates that Americans spend less of their income than anyone else in the world.

According to the United States Department of Agriculture, the average American spends between 6 and 7 percent of their income on food. In comparison, Germans spends 11%, Chinese 35%, and Indonesians nearly 50%.



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Alex Breitinger
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Alex Breitinger, a 2009 graduate of DePauw University, is a commodity futures broker with Breitinger & Sons, LLC in Valparaiso. He can be reached at 800-411-FUTURES (3888) or online at www.indianafutures.com.
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