Big Picture Agriculture has a good post on an Iowa State report titled, "Ag Cycles: A Crop Marketing Perspective", by Chad Hart an Associate Professor of Economics. Click over and check out the corn and soybean profitability charts. The report has some interesting information she highlights. She points out that unfortunately the report all but ignores the impact of public policy, like the ethanol mandate and subsidized crop insurance. I would also mention the China / emerging markets "Commodity Supercycle," which led to immense speculation in commodities markets by investment banks, pension funds, sovereign wealth funds and other big money, at least for a while.
As her charts show, corn and soybeans have been ridiculously profitable in the past six years, but long term, profitable times have always been followed by major pain. Now that we're hitting the ethanol blend wall, Congress has to limit the mandate, which will squeeze ethanol prices, and I think we can also expect oil producers to try to use the shale oil boom to try to get rid of the mandate. If that were to go, crop prices would plummet. It will be interesting to see if the free market fundamentalists in the Tea Party wing of Congress will allow the oil companies to crush their constituents by getting rid of the mandate. The farm bill fight indicates to me that they probably won't go that far, but it also shows that the rest of the country isn't too keen on the massive policy supports that benefit farmers at their expense. The recent boom times are way too dependent on what amounts to bad public policy, and with the commodity boom over, that is all we have to lean on. A couple years of massive crop insurance losses, and we might see the crop insurance program radically change.
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