Supply and demand will balance out over time but it gets nasty in the short term. Guys are strapped for cash. The farmer does not control the price of just about everything he buys or produces. That leaves him with few choices when the prices drop for the product he produces. The short term solution is to increase production to try and maintain gross income. This is what is happening across the products that farmers usually produce. This is a short term solution. The over production will cause the price to fall even further over the longer term. In the past this has caused huge swings in commodity prices. One year little of a commodity is produced so the price raises. Then the next year the product is over produced and the price drops. This boom and bust cycle will eventually even out if left alone. During the down price swings people will be forced out of production. So eventually the production will match the consumption.
The trouble is the government will try to "help" the producers when there are low prices. This just masks the problem and causes the production to not adjust as fast as it naturally would.
The trouble is that this latest price increase in grain prices was cause by a weather related shortage in two parts of the world. Australia and Russia had bad crops. Russia back to back bad crops. This created a world wide shortage of grain for protein. This drove prices up very fast, just a few months. Then you couple that price raise to ethanol production increases in the US and you really stress the demand for grains. So you have short term price increase caused by weather events world wide. Then the local farmers begin to think this is the "new" normal. They ramp up production rapidly. In a short time production exceed demand. The over production did not immediately show with lower prices because the world stocks need to refill. So we had several years of high prices for grain production. This year we saw the crash in grain prices. The response was to produce EVEN more grain. So I think we have not seen the bottom of the price decline in grains. People will have to switch production and I am not seeing that yet or at least not on a large scale.
This price drop is bleeding over into the livestock sector. Beef prices are down and milks has been down but came back a little bit. So your going to see increased production in milk. This may help increase income for a short while but not long term. There again it will take production being lowered for prices to come back. You will see more smaller dairies quit. It will be the highest cost producers that go out fastest. This usually is the smaller dairies. The economics of scale really mean a lot to the cost of milk production. The difference between a semi load of feed and a ton of feed can be 50% per ton. So if you can handle semi loads you have an advantage. Selling the milk too. If your only shipping a few thousand pounds of milk per day your not going to get the same price as the fellow shipping semi loads of milk each day. Many small producers around here have to pay a set stop fee to have their milk picked up because they do not have enough production to totally pay for the transport/pickup cost.
There is going to be a period of low prices in production agriculture right now. This will not be a short term thing either. It took years to happen so it will take years to swing back.
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Today's Featured Article - A Lifetime of Farm Machinery - by Joe Michaels. I am a mechanical engineer by profession, specializing in powerplant work. I worked as a machinist and engine erector, with time spent overseas. I have always had a love for machinery, and an appreciation for farming and farm machinery. I was born and raised in Brooklyn, New York. Not a place one would associate with farms or farm machinery. I credit my parents for instilling a lot of good values, a respect for learning, a knowledge of various skills and a little knowledge of farming in me, amo
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