The Wild World of Commodity Production

Last week saw a cascade of articles regarding the industrialization of commodity grain production.  From the New York Times:

Huge investment funds have already poured hundreds of billions of dollars into booming financial markets for commodities like wheat, corn and soybeans.

But a few big private investors are starting to make bolder and longer-term bets that the world’s need for food will greatly increase — by buying farmland, fertilizer, grain elevators and shipping equipment... 

 

...the long-term implications are less clear. Some traditional players in the farm economy, and others who study and shape agriculture policy, say they are concerned these newcomers will focus on profits above all else, and not share the industry’s commitment to farming through good times and bad.

“Farmland can be a bubble just like Florida real estate,” said Jeffrey Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm and consulting service in Bloomington, Ill. “The cycle of getting in and out would be very volatile and disruptive.”

This is not anything new, nor is it unanticipated.  It is the slow march of consolidation and concentration in agriculture, only now extremely high commodity prices have quickened the pace.  But the same things have been happening for decades.  The major difference right now is the new "players" jumping into the commodity production game- the hedge funds, institutional investors, etc referred to in the Times article.  Those players will drive up prices for everyone, reflecting increased profit potential (and their superior ability to manage risk in some instances), but is there really a difference between a grain elevator owned by Conagra or one owned by a hedge fund?  I suspect not.

As far as land goes, once again, existing trends are accelerated.  I'm sure we'll see more corporate absentee ownership of land, and further proliferation of farm management companies specializing in cash-rent farming operations.  At the end of the day, these structures may be the only way to secure the capital necessary for commodity production while managing risk.

I'll leave it to the hardheaded realist of agriculture, John Phipps, to sum it up:

The increased capital needs, significantly higher profit levels, and escalating risk in production agriculture will encourage the same forms of business as other sectors. We may look back a generation from now and date the disappearance of the traditional family farm from the 2006 October price explosion.

I'm afraid John might well be right.

But let me say this:  All of the free-trade, pro-market, consolidation-promoting farmers and policymakers should stay the hell away from my tax dollars.  John Phipps, to his credit, wants nothing to do with farm programs.  I support farm programs designed to support the family farm structure.  But we sure don't have those today, and the greed exhibited in the creation of the new ACRE program is pitiful.  If today's farmers and farm corporations want to be a business, hey, go right ahead.  Be a business, just like anyone else.  Take the forward contracting classes.  Learn to love triple stack, autosteer and GPS.  But stop latching onto tax dollars as a "safety net".  I'm happy to pay for conservation benefits, for rural development, and even for a farm program structure that might actually benefit rural communities.  But I'm not interested in subsidizing consolidation and the decline of rural America.