Just two years ago, U.S. corn farmers were chastised for overproducing and collecting government support because of depressed prices. We had just harvested the second largest corn crop of 11.1 billion bushels; prices averaged $2/bu.; and farm support payments rose.
Press reports abounded with negative articles. For example, a Puget Sound Business Journal 2005 editorial stated, “Subsidies encourage overproduction of certain commodities, then underwrite their sale on the global market at prices below which farmers in South America or Africa can grow a crop.” So low corn prices are bad.
Today, increased demand for corn has driven prices higher, and farmers in the U.S. and abroad are responding to the market signals by increasing production. USDA recently announced U.S. farmers intend to plant 90.5 million acres, the most since 1944. Corn prices are hovering near $3.50/bu. One of the first benefits of higher prices is farm support payments will be dramatically reduced.
Now we hear higher corn prices are bad. At the World Agriculture Forum this week in St. Louis, Tyson Foods, Inc. International Vice President Rick Greubel fanned the food vs. fuel flames, saying higher corn prices are the reason his company is passing the buck to consumers. Times must be tough for the world’s largest poultry producer; it only reported a $4 billion profit during the first six months of this fiscal year.
Wednesday’s Post-Dispatch cited Greubel, reporting “the cost of a boneless, skinless chicken breast has increased more than 70% during the past seven months.” However, Bureau of Labor Statistics (BLS), which tracks monthly retail food prices, shows a pound of boneless, skinless chicken breast rose from $3.28 in October 2006 to $3.33 in March. I’m not sure how Tyson does math, but that nickel increase reported by the government is 1.5%, not 70%.
If we listen to all the rhetoric, $2 corn is too low and we are driving the world’s farmers out of business. But $3.50 corn is too high and we are starving the masses and hurting consumers. Obviously somewhere in the middle must be just right. Do the naysayers want to set the price? Before they do, I would like to remind them history is littered with centrally planned economies.
There is one simple truth about agriculture: prices go up, and prices go down. There will be years of bounty and prices will fall. Conversely, in some years demand will strain the available supplies, and prices will rise. Both will impact the market and farmers will respond accordingly. After all who can set the price of corn better than the market?