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Corn+Soybean Digest

Fair Weather Economics in Agriculture

Did you see this commodity boom coming to agriculture? This is a common question asked as I travel the continent as the Road Warrior of Agriculture. The answer is: “Absolutely not.” Historically, commodity agriculture has operated by the two-in-10-year rule. That is, two out of every 10 years weather and market conditions align for huge profits and prosperity – even for the marginal manager.

This time the two-in-10-year rule has been extended. The next question might be, “Is this the new normal?” To answer this, lets examine the ingredients for fair-weather economics in agriculture.

  • The first contributor is the robust economies of emerging countries, which have led to changing diets and demand for agricultural commodities.
  • The prolonged war in the Middle East with unrest in major oil-producing regions created geopolitical risk. This, in turn, encouraged development of alternative energy. Politicians worldwide have encouraged incentives for the expansion of these alternative energy industries utilizing agricultural commodities.
  • Low interest rates and general stability in inflation until recently have encouraged risk taking among those who have capital to invest. The result has been productive economies and strong emerging and developing countries’ economies.
  • Consolidation of agriculture into the hands of high-powered managers with astute management, marketing, production and operating practices has led to record profits.
  • Weather aberrations in major production areas of the world have resulted in tight supply and demand conditions.
  • Collapse of the U.S. dollar and uncertainty, which has led to investment in ag commodities.

If these conditions persist, it is fair weather for agriculture and many rural areas. Weather and economics are alike. Conditions can change rapidly and one must keep an eye on the horizon to observe fronts forming that will result in tomorrow’s economy.

Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected]
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