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
But that characteristic of agriculture does not mean that when prices double or triple that farmers cannot find some additional land that can be newly considered for crops. Farmers will attempt to plant every wet spot, sandy knob, and inconvenient corner they can find, along with some hay and pasture ground and a portion of acreage coming out of the Conservation Reserve Program. And other things can be done too, such as a significant increase in the area planted to double crop soybeans. In the northern tier of states, some fallow ground may come into production early on the theory that at these prices even half a crop is profitable.
If the domestic response were all that we are dealing with, the price consequences down the road could be serious enough, but it is not just domestic response. Current price signals are being received loud and clear by farmers around the world. Brazil for example has the ability to break-out tens of millions of fresh acres into crop production over multiple years, and farmers in Brazil can increase existing acreage of multiple crops in the blink of an eye. Depending on the area, they can double- and, in limited cases, even triple-crop their land. As soybeans are taken out of the field, they can come in and plant corn. With current prices, they have every incentive to do so.
Part of the tightness in grains is a consequence of the searing heat that reduced wheat crops in Russia and in the Ukraine last year. Barring another year of high temperature extremes, wheat production can be expected to rebound. With high prices, farmers in Russia and Ukraine will have every incentive to bring ground that was idled after the collapse of the Soviet Union back into production. They also have the means as the result of Western investments in agricultural land and technologies.
With an increase in the use of drought tolerant seeds and a so-so year in weather, the additional acreage could result in record production and a severely downward trending price line. As the farmers in Texas told us, input prices have risen dramatically and they will be in trouble long before the cotton price hits 50 cents.
Euphoric production response to the current exceptionally high prices—domestically to some extent but especially worldwide—sets crop agriculture up to hit the wall down the pike. Economic-driven or politically based demand expansions or continuing weather extremes that severely disrupt worldwide crop production could allow agriculture to avoid the wall and remain profitable. Let’s hope so.
Otherwise, non-farmers, politicians, and farmers alike will be confronted with a historical reality: Once resources are brought into agricultural production, they tend to come out of production very slowly when prices crash, too slowly to be of much help in jacking prices back upward. It is that total crop output (and to a real extent demand) is sticky on the way down the price charts that challenges the standard market self-correction prognosis for crop agriculture. Depending on the extent of increase in resources brought into agriculture and the nature of subsequent demand growth, farmers may need help to adjust resources out of agriculture for multi-year periods or to adjust production from one year to the next.
It is this lack of responsiveness that farm programs have historically addressed. Perhaps the circumstances will be different this time. If not, the market challenge to dealing with slow production response after a price crash is likely to turn into a political challenge.