Disconnection from Reality in Agriculture

I often find myself irritated by what appears to be a serious problem with how some ag news outlets and their various pundits report on the dairy industry. Ever since milk prices plummeted a couple of years ago, I’ve been reading an endless string of opinion pieces by the so called experts, the pundits, even actual news reports, that indicate that milk production is dropping, or is going to drop, the number of milking cows is going to shrink, and there is going to be a significant improvement in farmgate(1) prices.

Even as I was reading some of those items I was scratching my head because the actual data I was seeing was telling me exactly the opposite of what the pundits at the ag web sites were claiming. While there was some shrinking numbers in some parts of the world, like New Zealand, what I was seeing in the rest of the world was a significant increase in production almost world wide.

The experts were claiming that production in the US was shrinking as well. They were claiming that production was flat or even shrinking as farmers culled herds and halted expansion plans.

The problem was that at the same time I was seeing new permits for mega farms being applied for, news stories about expansion plans, and other indications that exactly the opposite was happening.

The new USDA report that came out yesterday supported what I’d been seeing in the news, and indicated that the pundits don’t read the news reports in their own magazines or websites.

August milk production was up almost 2% in the US. Texas’ production was up 11%. The report said that 16,000 milking cows were added in July alone, and 45,o00 were added over the past year. And just ten minutes ago I was reading about yet another application here in Wisconsin for a dairy CAFO(2) to expand to 5,000 head.

The problem with a lot of these experts seems to be that they look at a specifically local condition and extrapolate from that and apply it world wide, while ignoring what’s really going on.

Some of the claims that production in the US was in decline was due to California. Production there has been declining significantly for the last ten years for a variety of factors. But they’ve been ignoring the fact that almost everywhere else in the US production has been going up. Wisconsin, North Dakota, Arizona, Minnesota… almost every state with any kind of significant dairy farm presence has been increasing production, often dramatically, as with Texas.

It’s been the same thing with the EU. They focus on a single country that’s seen a decline in production, and from that claim production is going down through the entire EU. When it isn’t.

It’s been a similar story when it comes to demand for milk products. They seem to focus on a small part of the world that is experiencing an increase in demand for milk products, and apply that world wide.

Even worse, they’ve gotten in the habit of looking at Global Dairy, a milk marketing system in New Zealand, as an indicator of world wide demand. But they tend to ignore the fact that GD is not an independent market. It is a wholly owned subsidiary of Fonterra, the New Zealand milk processing giant, and that it has a history of deliberately manipulating supplies flowing through the market in order to manipulate prices. Neither the amount of product flowing through GD, nor the prices of the products sold, is an accurate picture of supply and demand.

 

 

  1. Farmgate price is not the commodity futures price, but the actual price that the farmer gets for her/his product. There is often a significant difference between the commodities prices and the farmgate price. For example, a couple of months ago when the corn price on the Chicago market was running about 3.49, the actual price farmers in this area were getting for their corn was 2.78.
  2. CAFO is the term used by government for a mega farm. Concentrated Animal Feeding Operation. It applies not just to dairy farms but to any animal operation that has more than a certain number of cattle, pigs, etc. Generally around 500 – 700 animals.

Wisconsin Farmers Say They’re Hurting From Ag Industry Consolidation | Wisconsin Public Radio

Many Wisconsin farmers reported a bumper crop this year, but it’s not translating into record profits. According to the Wisconsin Farmers Union, low commodity prices and consolidation within the agriculture industry is a big part of the problem.

Source: Wisconsin Farmers Say They’re Hurting From Ag Industry Consolidation | Wisconsin Public Radio

Back when I was farming with my father, there were about two dozen different tractor and ag equipment dealers and service centers within around 15 miles of our farm. There were dealers or service people in almost every small town and city all around us; Clark Mills, Whitelaw, Reedsville, Valders, Michicot, Keil, Forest Junction, Hilbert, Chilton… Pretty much every little town had either a dealer or an independent service facility.

Today your choices are one of four mega-dealers who have pretty much taken over the entire ag equipment market in three counties or more.

Competition basically doesn’t exist any more. If you don’t like the prices at a particular tractor dealer, think you’re getting shafted on repair bills, well, too bad, Charlie, there’s no where else you can go.

Same is true with feed companies, fertilizer sales, seed sales… Competition pretty much doesn’t exist any longer. Your choices are limited to one of an ever decreasing number of suppliers, and that’s it. If you think you’re being overcharged, think you aren’t being given a good deal, well, go somewhere else.

Only there isn’t somewhere else…

Agrimoney.com | Farmland Partners unveils $197m land purchase – and plans for more

The group takes its portfolio of US land nearly to 100,000 acres – in a deal which will provide collateral for funding for more acquisitions

Source: Agrimoney.com | Farmland Partners unveils $197m land purchase – and plans for more

I’m beginning to wonder if it’s time to start to become worried about this trend. Farmland Partners is just one of dozens of investment companies buying up enormous amounts of farmland. Not to farm it themselves, but to turn around and rent it at the highest prices they can possibly get.

Given the volatility of the stock, bond and commodities markets, and the ridiculously low interest rates being paid by banks for standard savings accounts, the desire to invest in a fairly stable and relatively profitable venture like farmland is understandable. Farmland values do fluctuate, true, but not nearly as wildly as stocks and commodities. Compared to those ventures, farmland seems a fairly safe investment.

And a potentially profitable one because the land doesn’t just sit there, it gets rented for as much as $200 – $500 an acre, depending on local demand.

But I get very nervous when I see more and more farmland being concentrated in the hands of fewer and fewer owners, especially investment companies who have no vested interest in preserving the long term quality of the land, and only in making a return on investment. This practice makes it increasingly difficult for real farmers who want to get into the business to get started. Land has become so expensive in many parts of the country that it’s difficult or even impossible for a small start up farm to get off the ground without having the backing of outside investors.

Even worse, because the holding companies are going to charge the maximum rent they possibly can, those who can afford to rent the land are going to be forced to engage in the most intensive, potentially damaging, high chemical input farming techniques they can in order to maximize their own profits. This results not just in increased pollution from fertilizer, pesticide and herbicide run off, but also results in the degradation of the quality of the land and it’s fertility, causing even further reliance on intensive chemical intervention to continue to get the best yields.

Is this legal? Yeah. It is. At least in most states. Some states have restrictions on the amount of farmland that can be owned by out of state investors, but over the years those laws have been changed or even eliminated to permit companies like Farmland Partners to move in and take over. And I can understand the attraction. I own a fairly big stock portfolio, and the volatility of the market often makes me more than a little nervous. Farmland seems a far more stable, if a bit less profitable, investment for a lot of people.

While it may be legal and understandable, that doesn’t mean it’s the right thing to do.

Personally I feel the adverse effects of these companies; the artificial inflation of land prices, potential degradation of farmland, etc. outweighs the benefits.