On a sunny, subzero day 20 or so years ago, the great-grandson of a Kansas homesteader related one of the most important lessons passed on to him by his family’s boom-bust-boom generations of dry land farming.
“My grandfather,” he offered, “taught us that it’s not the choices you make in the bad times that usually cause you the most trouble. Instead, it’s the choices you make in the good times that often lead to the biggest disasters.
“There’s a lot of wisdom in that idea,” said his grandson, a respected financial expert about to serve his nation as a member of the Board of Governors of the Federal Reserve System.
That Kansas insight is as timely now as it might have been in 1915 or 1975 because the good times aren’t just rolling in agriculture today, they’re roaring.
The strongest evidence of the present rocket ride island prices; they’re past the moon and headed to Mars. Wow, $14,000 an acre in Iowa, $8,000+ an irrigated acre in Nebraska?
Given that blue, blue sky, it won’t be long before we see the proverbial bridge in Arizona offered for sale as a “uniquely elevated solar ranch.”
And yet, when the hard evidence of flying times is stacked up against nervous stomachs, the hard evidence is very hard to refute.
For example, current stocks of major crops — record low stored corn, ridiculously short soybean levels, better but still historically low wheat stocks, cotton supplies the lowest since 1924/25 — and the production year not even close to bloom, who’s to say $7 corn, $14 beans and $2 cotton (per pound!) aren’t right?
Steep prices, however, carry steep consequences.
Nation’s pantry bare
A huge one is the bare cupboard at the nation’s pantry, the Commodity Credit Corporation.
As of Feb. 7, the latest monthly look-see, the CCC held not one pound of butter, nary a slice a cheese, no corn, not one soybean and zero wheat. In fact, the CCC currently has nothing in-hand, on hand or near-to-hand. Not one bushel, hundredweight, pound or bale of barley, sunflowers, butter, cotton, dry peas, flax, nonfat dry milk, honey, chickpeas or sorghum, let alone one kernel of any major food or feed grain.
The Mother Hubbard act isn’t an act; it’s a fact dictated by price and policy.
The price part rides on today’s hot markets. Current commodity prices are so far above U.S. Department of Agriculture’s loan prices — the legal price producers receive when posting their crops as collateral for short term USDA loans — that few are “loaning” their production and no one is forfeiting crops to the government as repayment.
As such, the usual method of building government stocks, forfeitures, has gone the way of $2 corn.
Policy, too, plays an enormous role. Congress has used recent farm bills to lower loan rates as a way to limit government’s role and taxpayer cost in U.S. agriculture. As the rates fell, short term CCC loans became less attractive.
Fewer loans means fewer possible defaults and, in turn, fewer government stocks.
That policy, of course, limits government costs but it also limits government assistance should calamity strike.
Given the nation’s bottom-of-the-barrel “free” stocks, those held by the market, and not even one paper sack of groceries in the CCC pantry, how fast and far would food prices climb if just the threat of drought appeared anytime in the next six months? Right.
So, let’s be wise as we begin to examine the key elements of the 2012 farm bill. Let’s use these extraordinarily good times to build a stronger, smarter farm and food policy that, at the very least, begins to restock our empty national cupboard.
After that we can look at, say, elevated solar ranches in Arizona.