What is in this article?:
- Farmers adjust acreage to high prices
- Increased acreage
- Farmers shifting acreage with high prices
- Competition for acreage is underway
- Overproduction possible
Several weeks ago when we were in Texas to speak to a group of farmers, the talk turned to the price of cotton on the futures market. At that time, it was around $1.50 per pound, a far cry from the 50 cents per pound futures price just two years earlier. Most said they would be growing more cotton in 2011 than they had grown a year earlier. And that was before the mid-February 2011 30-cent increase in the futures price.
Farmers who had never grown cotton before said they were putting in a couple of hundred acres. They said they couldn’t afford not to. Others said their bankers were pushing them to shift more acres into cotton. We were told that peanut acreage will take the largest hit.
But cotton is not the only crop experiencing high prices. Corn, soybeans, and wheat are all up there too. The February WASDE (USDA’s supply and demand report) surprised most analysts by tightening up the 2010-2011 corn supply, leaving the year ending stock-to-use ratio at the lowest level in a decade-and-a-half. The response of the markets was nearly instantaneous.
With spring planting just weeks to a couple of months away, depending on the part of the country, the competition among the crops for acres is under way. Each price, by itself, is a call for more acres. And that is fine when at least one crop price is relatively low; acres can flow out of the lower priced crop and into crops where the relative profitability is greater—well, cotton is probably not going to be grown in Minnesota, even at $2.00 a pound.
Between 1998 and 2001 we saw a significant movement of acres among crops. Relative to corn and wheat, soybean demand was up and farmers lost less on soybeans than the other two crops, so acres flowed into soybeans. In 2007, the projected demand for corn from increased ethanol production resulted in millions of acres shifting from soybeans into corn.
At this point in 2011, the price of cotton, rice, soybeans, and wheat all look good, and, while they can’t all be grown in every county, the scramble for acres is on. As farmers, we know that most acreage decisions are zero sum games—an acre increase for one crop is a one-acre decrease for another. As obvious as that near one-to-one substitution is to farm operators, it is a characteristic of agriculture that is not so obvious to most non-farmers. Those non-farmers believe, either consciously or unconsciously, that farmers utilize all their cropland when prices warrant and plant only a portion of their available cropland when they don’t. That belief can lead to unrealistic expectations about adjustment of total acreages devoted to major crops when prices tank.