Competing world producers have a distinct advantage over the U.S. in the cost of production. Land cost is a major factor. Let's explore some reasons why.
The cause I hear for “high” land values in this country is government farm programs. The thinking is that crop-support payments are used by producers to bid up cash rent rates. This results in higher land values than would be thought possible if rental rates were based on the prices that we are receiving for our crops.
I don't disagree. Fact is, in North America we are losing land base daily to urban development. South America, on the other hand, is clearing new land. Simple economics dictate a higher price for a dwindling resource.
If South America has a fluid land production base, there's no reason for land prices to escalate. In fact, prices could even fall if too much land is brought into production.
We also have to consider the effect of investor money. In this country, we have many investors who can buy whatever they want. They may purchase a Montana ranch or an Iowa farm for a weekend getaway.
Developing countries don't have this situation, yet. So far, they only have a limited amount of investments, and it's from foreign sources.
The biggest unspoken factor that I see is the result of technology. Has our quest for bigger, faster machines ultimately put 50-70% of our U.S. producers at risk of unemployment?
Major manufacturers build 24-row planters, 60' air seeders, and combines that will harvest a quarter section of corn a day. It looks as though we'll need only 10% of the farmers we had just 30 years ago — and we'll produce more product.
Usually, producers adopt these new machines and increase their land base to keep their machine cost per acre consistent — and to significantly lower that ever-increasing fixed cost of family living. Some then use those resulting saved dollars to bid up land rents and farmland values.
Our inability to compete globally is partially our own making. We may be heading down the same path that the manufacturing industry of this country did.
In manufacturing, adapting technology caused a decrease in the workforce. Then, labor unions pushed for an increase in wages, offsetting cost reductions gained from technology. Developing economies, having a cheap labor force, then took those U.S. jobs.
Agricultural producers in the U.S. are streamlining their production methods with equipment and Roundup Ready crops. Should I assume that government support payments are keeping inefficient producers in business? That's a fate somewhat similar to what labor unions did for manufacturing.
The producing segment of any country's economy is basically an entry-level or minimum-wage occupation. Our economy is very service-based — $30/hour mechanics fixing $40,000 cars bought by professionals making $50/hour.
Nobody seems to be producing anything; it's just an economy in which everybody exchanges dollars. Is it sustainable? Only time will tell.
Unfortunately, in this country, a majority of consumers have little concern about where their purchases originate. Their only concern is that those purchases are available when needed — and cheap.
When I drive through cities, I see many abandoned factories. It makes me wonder if my grandkids will drive through the countryside someday, seeing barren land from which my grandparents once made a living.
Steve Pitstick is a 1,500-acre corn and soybean farmer from Maple Park, IL. He can be contacted by e-mail at: egrains@aol.com.