Here is my disclaimer: I have mild insight into the field of agriculture, mostly into field crops. I am a journalist who spends a great deal of my time writing about the issue and I have for several years, though it is certainly not my only “beat” nor am I a farmer or commodities expert. I am socially liberal, more fiscally conservative, and my views of global warming are slightly different than what is being pushed as popular these days (and do involve agriculture in a very small way). I will try to present a colloquial quick-and-dirty of some agricultural issues facing us right now as a nation and world, in as objective a manner as I can, just from my observations.
I would not suggest you take any of this for the gospel truth, since I am not providing you my professional information. In fact, I would not suggest you take the gospel truth from any source if you cannot identify its financial and political interest. All this is intended to do is get you interested enough to look up stuff on your own with official and educated sources. Be careful of what sources you trust, especially online – even me – and what news outlets you choose to believe. While some of my information (numbers) comes from the USDA, I keep in mind at all times that such agencies do have politically-appointed directors.
Finally, if you really want to know more about agriculture – ask a farmer, for God’s sake, or call your county extension office (usually affiliated with a university) or Farm Service Agency office (a branch of the U.S. Department of Agriculture, or USDA). The hundreds of people I’ve dealt with in this part of my career have always been friendly because I treat them like the experts they are, and because I freely confess that I don’t know much about farming.
Corn is the Controversy
Right now, there’s a lot of talk about food vs. fuel and how corn ethanol being made in the U.S. is robbing poor people of food and making it harder for seniors and others on fixed incomes to afford their daily meals. Farmers are being called greedy for getting $6/bushel corn futures and $13 or higher soybean futures. Wheat futures even made records this winter, at $9 and more per bushel. (More on prices later.)
Last year, farmers planted a little over 90 million acres of corn in the U.S. and harvested over 13 billion bushels from that. When you drive along and see fields full of stalks bowing with ears of corn – if you’re not a farmer – you’re undoubtedly thinking of what you boil for a picnic, or what is processed in a factory for cornflakes, cornmeal, and syrup used for sweeteners in soda and the like. The kernels you eat off the ear is sweet, or immature, corn, and it is about 1 percent of all corn grown in the U.S. The other 99 percent is field corn – some is used for cornstarch, flakes, syrup, meal, and other corn-derived processed foods; about 10 percent of it, according to the USDA’s Economic Research Service.
The other 89 percent goes for livestock feed and exports (mostly feed). I’ll explain more on this later.
Corn for ethanol is counted by the USDA in the same category as food and seed corn (but remember, what is used for ethanol is not “sweet” corn). In 2006, the U.S. grew 10.5 billion bushels of corn overall, and 3.5 billion was categorized as “food, seed, and industrial” – of that, 2.117 billion bushels were used for ethanol.
In 1998, farmers grew 9.8 billion bushels and 1.85 billion bushels went for “food, seed, and industrial.” I could find no figure on how many of those bushels went for ethanol; the closest help I can provide is that in 2000, the American ethanol industry produced 1.63 billion gallons and in 2006, that had jumped threefold to 4.86 billion gallons. Because processes of making ethanol improve over time (meaning, being able to get more ethanol per bushel), you can estimate that there was probably less than a threefold increase in usage of corn from 2000 to 2006. So, a best guess would be that from 1998’s corn, perhaps just under 700 million bushels went into ethanol – which if true, would mean that slightly more corn did go for human food use from what was grown in 2006 than from 1998, despite increased ethanol usage.
So the argument that ethanol is taking corn from food use is not yet supported by numbers. If you look again, you’ll see the number of bushels of corn is a lot more now than what was grown in 1998 and even 2006.
As for the “greed” of farmers, what I can point out is that in 1979/80, the average price paid for a bushel of corn was $2.50; last year, it was $3.04, according to USDA; these figures are not adjusted for inflation. Price varies with the time of year, depending when a farmer delivers the grain to an elevator or an ethanol plant, and the quality of the grain. It also depends on whether a farmer was able to lock in a contract on a higher futures price, or took a lower cash price upon delivery.
I won’t attempt to get much into the futures market, except to say it’s as much a clusterfuck as the regular stock market. The good news for farmers is that because of several factors, they’re seeing higher futures prices for corn, soybeans, and wheat. $6 corn is a record, and so was $15 soybeans. The bad news for farmers is that when prices shoot up this quickly, they can start falling just as quickly on news of the weather, demand, and planting forecasts.
Because of that, there’s a great deal of what’s called “volatility” in the market right now, which just means it’s dangerous to play unless you’re a commodities expert and you have money to play with. You know the old saying, “It takes money to make money?” In this case, it takes money to invest in the commodities market because of margin calls – which is basically fees you pay to play, and depending how you play, a pledge that you’ll be able to cover your losses if there are any (actually, the exchange handling the trade is responsible for covering margin calls, and IT charges investors in turn). It used to be that grain elevators haggled in the market on behalf of farmers because the elevators dealt in large volumes (lots of farmers commingling their grain at the elevator) and they would simply pay the farmer whatever their contract price was, for a profit of course. Lately, though, there are a lot of elevators not wanting to do this because they are responsible for covering those margin calls, and their banks are nervous about giving them lines of credit to do so, plus their profit margin is not as desirable right now. So this means a lot of farmers who are inexperienced or don’t have that much money to put up may have to get into the market themselves – or, they can just wait until later in the year to try to get a cash price for delivery of their harvested product.
Back to ethanol for a moment. If you’re a corn farmer who lives near enough to an ethanol plant to deliver to them, you may get a higher per-bushel price for selling them your grain than selling it to a grain elevator or any other customer. High oil prices allow ethanol plants to also sell their ethanol for higher prices, even while keeping it lower than gasoline. (Generally, ethanol – made of corn in this country, by and large – is a gas substitute; and biodiesel – made of soybeans and other oils – is a diesel substitute.) This means ethanol plants can afford to give farmers a higher price for their corn. If oil goes back down, ethanol prices will have to back down as well, and the farmer won’t be paid as much.
Back to the point of higher food prices – there are people who blame corn growers and ethanol producers for this. There are others who counter that the price of everything is going up, even goods and food not made out of corn, because the price of shipping (and petroleum used in manufacturing any packaging or non-food items) has skyrocketed due to higher gasoline and diesel prices. In 1988, when I got my driver’s license, I paid 78 cents for a gallon of gas. In 1999, I think I was paying less than $1, from what I can recall. Today, the gas station across from my home is $3.64.
Farmers will point out that compared to the rest of the world, Americans pay much less of their total income toward food. Others will point out that that’s because parts of the agricultural system in this country are already subsidized by those Americans’ tax dollars.
The Farm Bill
About every five years, Congress debates another farm bill, which is basically saying how agriculture and related activities will be funded for the next few years and how much it will cost. This includes subsidies for farmers producing corn, soybeans, wheat, sorghum, cotton, and milk, as well as social programs such as school lunches, Food Stamps, Women, Infants and Children (WIC), and the like. This also includes funding for conservation and wetlands programs.
Basically, it’s the USDA’s budget for five years.
There are many factors that drive debate over the farm bill, not the least of which is the fact that a lot of people in Congress are not farmers, nor do they hail from farming areas. Only about 1 percent of the U.S. population is engaged in farming right now – of course, there are many more people who work “in agriculture” by dint of processing, shipping, selling, and preparing food. But those are separate issues from food production itself.
The last farm bill was to expire in October 2007. It has been extended a few times by Bush and is currently good through April 25, 2008 – two days from when I wrote this. Both the House and Senate have voted on proposals, and Bush has threatened to veto their plans because he says the lawmakers have not set the subsidy cap low enough – in other words, he’s suggesting if someone earns a gross income of $200,000 a year or more (the figure varies occasionally, but it’s in the lower hundred-thousands), that they not be allowed to collect commodity subsidies, whereas Congress has set the proposed cap much higher.
One more important point: The Republicans suggested last year that the Democrats’ proposed farm bill showed an increase requiring raising taxes “on ordinary Americans” to finance it – you may remember this from the news. These tax “increases” were actually the Democrats’ insistence that companies doing business offshore not continue to be given Republican-supported corporate tax breaks. The proposal did not suggest raising the taxes you and I pay.
I don’t pretend to know a lot about subsidies; you will want to research this yourself if you are interested. Subsidies were one reason for the first farm help back in the 1930s, intended to pay farmers for producing food in spite of low prices due to the horrible economy. They were intended to make up the difference between market price and the prices lawmakers would set as “fair” for that crop – again, these are basic commodities only: corn, soybeans, sorghum, cotton, and wheat. (Tobacco used to be subsidized, but that was done away with and growing quotas abolished a few years ago; those contracts go to larger farmers now, instead of many farmers each growing a few acres of the leaf, which they usually did to supplement their other income, since tobacco fetched a higher price than food out of the field.)
EDIT: There are other commodities that are subsidized, but I confess I don't know so much about them; these include sugar, peanuts, and rice, for example.
There are arguments over whether subsidies are still necessary, now that the market is paying very good prices for those commodities. But farmer organizations point out it was just a couple of years ago that they were still getting pretty poor prices for what they were spending to grow the food (price of fuel, fertilizer, machinery, seed, labor, land leases, property taxes, etc.), and since this bill is intended to be in place for 5-10 years (has not yet been decided), they worry prices could fall again in that time and they’d be without a “safety net.” Still other groups suggest a different way of calculating subsidies, basing it on a farmer’s prior income rather than his production capability or market price, and still other groups are suggesting an additional feature promising disaster assistance in times of need. (Right now, there is no assured disaster assistance. For example, last year’s hard April freeze that ruined a lot of fruit crops, and the subsequent drought in the summer and early fall, do not bring “free money” from the government. If an area is declared by the USDA as a disaster designation, the farmers in it are eligible for low-interest loans up to a certain amount – but no grants or giveaways.)
Because this is a volatile election year, there’s doubt whether a farm bill will pass Congress before November. Neither party wants to jeopardize their chances at the White House and a Congressional majority by passing something that’s going to piss off a lot of people. Bush and the USDA are pushing for a vote, and Congress is pushing back by making proposals Bush has said he will veto. The battle rages on.
Farming Ain’t Cheap
Maybe you grew up near your grandparents’ 300-acre farm, or knew someone who had 100 acres or so, and were able to make a living that way. Those days, by and large, are long past. The small farmer who can make a living only farming full-time are few and far between; much of the land has been purchased by fewer number of farmers who oversee thousands of acres at a time, and even companies, or is rented out to farmers by non-farm landowners under what you might think of as sharecropping: The farmer pays rent, raises the crops and bears that expense, and after selling the product, pays a certain portion of the profit to the landowner. (This is also where you get the popular politicians’ term “Fifth Avenue Farmers” or “Wall Street Farmers.”) Most farmers who have “small” spreads have to work full-time at something else – a factory job or driving a truck, for example – and do farming when they’re home, or their family helps out with that.
Farming is an expensive enterprise. There’s machinery and fuel (and fuel costs are hard to budget, since you can’t tell what it’s going to be from day to day) for the tractors and combines and hi-boys (those funny-looking tractors with tires so high you can walk under them); there’s labor expenses (and farms are still a big employer of illegal aliens as well as legal visa workers; this is sort of an open secret that nobody talks much about – on the one hand, illegal is illegal; on the other, if a somewhat smaller farmer had to pay higher wages and half the employees’ share of Social Security and Medicare as required by law, they might not stay in business or grow as much food). There’s also fertilizer, which is usually potash or anhydrous ammonia (nitrogen – a big ingredient in methamphetamine, too), the prices of which have doubled in the last year alone. There are insecticides and herbicides and fungicides to pay for. There’s rents to pay to landowners, or property taxes each year on one’s own property; there’s the cost of hauling or paying someone to haul grain to market after harvest. There’s also storage bins and silos to consider, which have to be kept sealed tight and moisture-free.
Finally, there’s the cost of crop loss insurance. Remember when I talked about USDA disaster designations above, and low-interest loans? There’s another catch to qualify for such a loan: You have to have crop insurance, in most cases, since you can only get a loan for what your insurance won’t cover. This is just what it sounds like – a policy you take out to insure against loss of crop due to weather and natural disasters. Unlike a life insurance policy – which you can set for any limit so long as you’re willing to pay a higher premium – crop insurance reimbursement is limited to market prices.
And this is just for grain and cotton farmers. Livestock producers have another set of expenses: feed, hay, water (which turns into an expense if there’s a drought), veterinarians, medicine, barn and corral upkeep, shipping, manure disposal, etc.
You may hear arguments about GMOs – genetically modified – grains such as corn, soybeans, and wheat. This means the seed has been specifically bred to exhibit certain traits such as resistance to bugs or herbicides (it does no good to spray Round-up if you’re going to kill the corn next to the foxtail or ragweed), or to produce a higher yield. Thirty years ago, if a farmer planted 100 acres of corn, he might expect to harvest about 13,000 bushels in good weather; now, for the same effort and a more expensive seed, he might get 18,000 or more out of that same land. The seed market is generally careful to define GMOs separately from “transgenic” seeds, which incorporate genes from something other than the kind of seed it is (a GMO soybean seed is ONLY soybean genes). Transgenic is by far the more controversial.
A note on organic farming. People generally think this is a cleaner, less land-abusive way to farm, since it doesn’t make use of chemical fertilizers or pesticides/herbicides/fungicides, and doesn’t use GMO seeds. Many farmers won’t do it because it is more labor-intensive – you can’t spray for weeds; you have to plow or pluck them out. Per-acre yields are also much lower – which means less to sell and lower profit – and the crops are more vulnerable to worms and bugs. This is why organic costs more than “mass produced” equivalent food, despite perceived lower costs due to fewer chemicals and less expensive seed. Ditto for raising animals or milking organically (i.e., non-confinement, fewer numbers, more regulations, especially the raw milk issue).
Finally, there’s the issue of banks. A farmer who has a good reputation and relationship with his bank can get a line of credit to buy supplies and pay his help, and then pay it back after selling the finished product. As land prices and taxes go up, and the commodities market becomes more volatile, more banks are nervous to make higher loans or finance margin calls, even for established borrowers.
I don’t know a lot about livestock farming; my concentration is mostly in field crops. But I’ll do what I can to explain a couple of things.
One big issue of controversy is confinement operations, or CAFOs. These are buildings filled with cages full of turkeys or chickens to lay eggs, or barns filled with dairy cows, or buildings filled with pigpens full of hogs and piglets. The big issues from these are manure disposal/odor and animal treatment. The EPA and state departments of natural resources (DNR, as they’re usually called) generally establish regulations of manure disposal, but don’t have very many regulations governing the treatment of the animals within.
While this certainly is not true of every livestock farmer, many I know are concerned with treating their animals as well as they can. Let’s face it: It’s a grim existence, and not a happy ending. There are genuine issues that as a non-farmer, I am more concerned about than farmers tend to be – whether I am in the right or they are is something left to whatever god there is and the philosophers – which include confined movement of animals, over-milking of dairy cows, fattening of hogs with little exercise (because that’s not the point – the fatter a pig on the right feed, the more it’s worth, honestly), etc. However, I admit I’m not a cow or a pig or a chicken. I’ve heard such animals, especially cows, are quite happy in confined areas because they are prey animals and as such, are more nervous out alone in open spaces for too long. As I said, I don’t know enough about this issue to give you a solid opinion, though I am in favor of humane treatment for food animals.
One issue right now that’s big among livestock farmers is the price of grain and availability of hay. Many food animals are fed with hay or derivatives of corn, soybeans, and sorghum. Last year’s U.S. drought resulted in a severe shortage of hay because the fields dried up before it could be cut. Because of this and lower levels of streams and ponds, cattle farmers had to cull herds and sell more animals out West to feedlots and slaughterhouses than they intended, and earlier in the year. (Even horse owners have had problems – if you’ve heard a lot of stories of late about neglected or “rescue” horses, this is a big reason for it. Hay is expensive enough for cattle, which at least earn something back in meat. A pleasure animal not raised for breeding or meat is a luxury, and when hay doubles in price and has to come from the next state over, it can cause problems.)
As for grain – well, it’s not hard to figure out that as the price of grain goes up, so does the cost of it for the livestock producer. (This also explains somewhat the increase in pet food you’ve seen – many use grain gluten as the fibrous content.) Many hog farmers are very worried they’re going to lose money this year, and many undoubtedly will, or even have to go out of business. There is some resentment among them as well, toward ethanol demand for corn. According to the USDA, in 1980, 4.35 billion bushels of corn went for “feed and residual” use in the U.S. – this was more than half the nation’s production the previous year. In 2007, 5.6 billion bushels went for feed and residual; again, more than half the previous year’s production. (Here, the argument that ethanol is taking corn from food production is not yet supported by numbers. Ethanol is, however, driving up the price by setting a standard in an alternative market for growers. If you only ever had two customers for your product and a third one comes in and offers you more money, the other two customers have to step up what they’re willing to pay, somewhat, to make their business more attractive, right?)
There is a byproduct of the ethanol process called DDGs – dried distillers grains. Basically, in a dry-mill process, this is what is left over of the corn after the part for the fuel is extracted. Out of a 56-pound bushel of corn, about 18 pounds is DDGs (in a wet-mill process, it’s slightly less, in the form of meal). This can be fed to livestock and is considered very nutritious by some experts. But there is concern among other experts and some livestock owners that the DDGs contain chemicals or … well, something, that may end up not being good for the animals. (Though I freely confess I’m not up on this subject.)
As a personal aside, I do eat meat and I probably always will. As our global population continues to increase rapidly and people in other countries start being able to afford better food – including meat – there simply has to be more meat produced. You can either breed twice as many animals – who require space or to be shoved tighter into a smaller space – or you can breed animals to put out more milk and have more mass for slaughter. It’d be nice if every livestock animal were allowed to live the kind of life my grandfather’s small farm provided – able to run around freely, eat grass and peck corn, and get sunshine before an eventual quick slaughter. But, is it possible with so many people to feed, and can it be done inexpensively enough so that those people can afford it? That’s a big question.
Global Demand and Other Stuff
Now more than ever, there’s a huge global demand for basic grains and foodstuffs. With more jobs and a burgeoning economy, the middle class is expanding and growing in much of Asia, notably in China and India. Many people who before could only afford perhaps rice and wheat can now afford corn and soybeans, which have higher nutritional value (soybeans, especially, are packed with protein, and corn has a high starch content). This is another factor in higher grain prices in the U.S., and also in South America, where places such as Argentina and Brazil are growing exporters of soybeans.
Another factor playing into global grain prices (and meat prices – remember, much meat depends on grain and therefore, that cost has to be passed on to the consumer) is grain stocks. There’s a certain level of stocks that agricultural experts recommend a country keep in storage from year to year in case of drought or other natural disaster, or even trade problems. You can’t just eat, feed, or make fuel of everything you grow as you harvest it – this is like never keeping anything in your pantry. Of course, the level of recommended grain storage varies from expert to expert, but it is generally agreed that right now, global stocks are low, or tight.
The problem here is twofold. Demand is not going to decrease, so in order to keep stocks in place or even increase them means higher market prices for what IS available. Some experts have predicted another 5 percent increase in prices this year for food in the U.S. alone. And this is banking on a good weather year in all the countries that grow grain in any volume. (The South American crop year is, by and large, nearing its harvest time, while the North American planting of fall-harvest crops is just beginning.)
The second problem in this “twofold” is the weather itself. Without exaggeration, I can say that weather is the single largest worry any farmer and consumer should have. Right now we’re subject to a La Nina cycle (which alternates with El Nino), which I know a little about but will not attempt to describe since I’m no meteorologist. You can look up information through the National Weather Service website and see forecasts for the next few months if you’re interested. By and large, however, La Nina is blamed for the spring freeze we had last year (as well as the late chilly weather the Midwest has experienced this spring, and the harsh winter it just had) and the drought that hit the Southeast U.S. especially hard. (Kentucky, Tennessee and the lower states have a great deal of cattle, especially, and many producers had to sell for lack of water and hay last summer; you may have noticed higher beef prices at the store.)
Finally, another big factor in global demand is the value of a nation’s currency. Right now, the U.S. dollar is weak compared to the yen and the euro, as well as other forms of currency. What this means is that our money does not go as far as it used to – easy enough for any American who has traveled abroad lately to verify. It also means that consumers in other countries can afford more of what we produce, since it ends up being cheaper for them, for this reason. Also, our increases in price hurt American consumers more than foreign consumers, since it’s not as great a jump for them as it is for us. (I’m no economist; I can’t tell you all the reasons the dollar is weak or how long it will stay weak. On another personal aside, I will venture a lot of it is because we manufacture less than we used to. We don’t have much to trade these days except cash and agricultural goods. And there is no export duty on food we ship out.)
A note about land: In the U.S., you may see whole fields and tracts that are privately owned, are not national forests or reservations, and seem to be fallow when they could easily be planted to more crops, thereby lowering prices – after all, if you need more of something, you just make it, right?
Not exactly. Some land isn’t right for crops – too dry, too wet, too hilly, bad soil, high pH, you name it. Other land that could be planted is under contract to the USDA as conservation ground – a yearly stipend is paid to the owners for the sole purpose of keeping it fallow and free of livestock for natural cover/food for wildlife (and occasionally for game hunting). These contracts are generally for 10-15 years, and there is a penalty for early breach, to be paid to the USDA by the landowner. Some farmers have felt the profit from planting overrides the value of the penalty and loss of the federal stipend; others have been lobbying the USDA secretary to release some of those 33-36 million acres without penalty so they can be planted – and so far, he’s refused.
And still other land … well, if you plant land, you have to care for that land with fuel, machinery, labor, fertilizer – all the stuff I mentioned above that are farming expenses. It costs more to grow 3,000 acres than to grow 2,000, and it takes more time.
I have my own opinions on this, involving plate tectonics and increased recent activity with earthquakes in odd places, tsunamis and volcanoes – but I’m not going to get into detail, except to opine for the record that it’s not the planet we need to worry about: It’s humanity and whatever other species we hold dear. Because we could blow every human and half the animals off the face of the planet tomorrow – and the planet would not only continue to exist and orbit, it would recover within a couple of millennia.
Those who worry about clean air would do well to educate themselves on the current processes of making ethanol, generally marketed as a “green” fuel. It’s true that when burned in a vehicle, it produces different kinds of emissions than petroleum (notice I say different – not better or worse). But consider a few things:
Learn what powers an ethanol plant. (Hint: It probably isn't ethanol.)
Those smokestacks at the ethanol plant aren’t for show, and it’s just been in the last few years – and with extreme pressure from environmental groups and citizens angry about increasing cases of adult-onset asthma, heart disease, and cancer that the EPA refuses to attribute to smokestack emissions – that corn-processing facilities have instituted special processes and scrubbers to clean their output.
Those rainforests being cleared in South America and other tropical regions? A lot of it is being done – and at least some of it is being financed by American companies – to create more land for planting corn, soybeans, and sugar cane for both food and fuel. The obvious problem is that replacing trees and tropical growth with crops is not an even trade. First, crops do use carbon dioxide, but they are only in the ground part of the year, whereas trees and brush are continuously there. Second, they’re much smaller than a big tree or all that “filler” brush. Finally, burning is employed in this clearing, which actually adds carbon dioxide, monoxide, particulates, and other pollution to the air and atmosphere. (And that’s not even getting into the displaced creatures that live in those forests.)
There’s a side issue of water usage – water for processing corn, sugar, whatever into ethanol – and water for growing the crops, which comes through irrigation of standing water bodies and of underground aquifers. Again, I’m not yet familiar with all these issues, so at this point I will not elaborate further, but urge you to look into the matter if you wish more detail. As I mentioned above with meat production, water is also going to become a hotter issue as the population continues to grow, since fresh water is a finite resource.
I’ve scattered what I think throughout this tome and I hope I’ve either cleared up some things you may have been wondering, or at least given you more cause to think. And you may disagree with some of it; the fact is, again, I’m no expert, and my information is incomplete on some of this. You may have heard a lot of economists and other experts calling the current financial/agricultural situation “a perfect storm” – and, indeed, there are a lot of factors at work here. Ag economists generally agree they haven’t seen such a confluence of food and fuel impact since the early 1970s.
The good news is that we know the U.S. largely recovered from those problems back then and went on to do quite well – for a while. And despite the problems smaller farmers are having staying afloat – as always – the fact is, there’s a great deal of money to be made in the field of agriculture and side industries right now, for people with the right holdings and the right training and jobs.
But the difference between the 1970s and now is that back then, Americans still had a level of manufacturing infrastructure to turn to that few other nations had, and other nations were not the economic powerhouse the U.S. was. That is no longer the case, and our economic recovery is likely going to need some regulatory help from the federal government. It cannot depend entirely on agriculture, because our country is only so large and can only produce so much. On the other hand, people should be more aware of where their food comes from and should perhaps try to gain a better understanding of and respect for the people and issues behind the food they eat and the fuel they pump.