I’m a devotee of Market to Market, Iowa Public Television’s farm program. Because Idaho PTV broadcasts it at the ungodly hour of 6:30 a.m. on Saturdays, I seldom see it on TV, but I can catch it on the internet anytime, and even see episodes I’ve missed. To get in the spirit of the thing, I suppose that by 6:30 I should already have been up and out to check the sheep, or something. Oh, wait, I used to do that during lambing season — and at midnight, at 2, at 4….it was enough already. And my in-laws in Illinois, who actually do grow corn, are on the Redneck Riviera this time of year, so they’re not sitting at their kitchen table in their John Deere caps at that hour of the morning, either.
My favorite part of the program is the last segment, where one of several rotating commodities experts pontificate on whether it’s time to sell that big pile of corn that we all have in our backyard silos — fraught with tension, these discussions. Will prices rise or fall? Time to buy some puts? Fun, especially if you have no money invested yourself. My favorite gurus are Virgil Robinson, Sue Martin, and Tomm Pfitzenmaier. I love Virgil because he predicted the big run-up in grain prices back in 2008. I like Sue because I can imagine being her, if I’d been born with better career sense. Virgil always thinks prices are rising, and Sue always thinks prices are about to fall, so if you alternated acting on their advice, you’d probably break even. Tomm Pfitzenmaier — well, I just like his name.
So what are these experts saying? I’ll paraphrase the last few episodes. Cotton first: where prices have been screaming higher and higher for months and are now over $1.60 a pound. This after years and years, decades really, of prices between 40 and 60 cents a pound, prices that effectively held down other fibers, like wool. Some of this was due to the subsidies paid to American agribusiness to grow cotton, one of the most soil-draining, pesticide-intensive crops ever. And it’s not like we actually even make anything from our cotton anymore: we apparently ship almost all of it to mills in Asia. But the subsidies caused overproduction which in turn bankrupted poor cotton farmers in Africa.
The differences now, the things that are affecting all commodity prices, boil down to climate and China.
Corn is the big player. The U.S. Grain Council predicts that the Chinese may import up to 9 million tons of corn in 2011-12, up from 1.3 million in 2010-11. But the U.S. Department of Agriculture still estimates that China will import only 1 million tons in 2011-12. So if the Grain Council is right and the USDA is wrong, all hell is about to break loose on the grain markets.
China used to grow enough cotton and corn to supply its domestic needs, but now, word is that China is short 10-15 million tons of corn. China also buys 60% of all the soybeans available on the world export markets. That’s right: for every 10 tons of soybeans exported, China buys 6 of them. By 2015, it might be importing 25 million tons of corn, too.
Last Friday, corn was $6.65 a bushel, up from $5.40 only a month earlier. This is lightning speed in the grain markets, or anywhere, really.
Which brings us to beef cows, of which there are 92.6 million head in the U.S., a 10% drop since 1996. You have to go back to 1958 to find a year when the U.S. had fewer cows than it does now. Higher grain prices usually mean a drop in steer prices, too, but this hasn’t happened. The smaller feedlots fold, but the large corporations just keep buying cattle. And yet, beef cow numbers are not expected to rise. What’s going on?
Strong steer prices usually encourage ranchers to hold back heifers from the slaughterhouse, but replacement heifers actually declined 3.8% over the past year. This means that the national beef cow herd will continue to decline, which in turn means high beef prices despite high corn prices.
In North Dakota, Pfitzenmaier says, he had a rancher tell him that what with most ranchers being “older folks”, they’re seeing “a great opportunity to liquidate the herd right now with these high kill cow prices, this high calf market.” In other words, their children don’t want to be cowboys, and the parents have incentives to get out while the getting is good.
Over the past fifteen years, beef cow numbers in Lemhi County have dropped from just over 50,000 to 39,000, about a 20% decrease. The larger operators consume the smaller, but the survivors don’t increase their herds, even with more land. They spread the cows they have over more ground in an attempt to reduce costs. It’s not a particularly good strategy, but it’s all they have left.