"U.S. Farmers Are Producing Too Much Food. Here’s Why They Can’t Stop"

In all the stories about Kansas and their tax cuts and the retarded economic growth I've never once seen mention of the impact of the mini-recession in the ag sector on the overall performance of the state's economy. I use KS as example only out of laziness, I remembered a factoid from the Kansas Dept. of Agriculture from a couple years ago that Ag, food and food processing contributed over 40% of the state's economy. I'd guess the same effects would be true for the other corn and wheat producers, althogh not to the same extent.

Here are the last 2 1/2 decades of wheat prices via FinViz:



Those are nominal prices for the futures. Inflation adjusted cash prices received by farmers are the lowest in over 30 years.

From the WSJ's Real Time Economics:

Farmers are producing too much wheat and corn, dragging down economic growth and pushing some farmers out of business. 

Farming has unique challenges. Start-up and expansion costs are large, investments take years to mature and the nation’s vast network of farmers is too disjointed to cooperate on production cuts. This can result in an economic enigma: rising output amid falling prices.

“We call this the irreversible supply curve,” said Chris Hurt, an agriculture economist at Purdue University. “You get a period of higher prices where there becomes a feeling among producers that it’s a new era, and they’re willing to make big investments. It is the big fixed cost once you have invested in [new land or equipment], and you can’t reverse it.”

Global prices of wheat and corn have tumbled since 2014. That’s squeezed many farmers’ profits and dented economic growth in 23 U.S. states.

Still, it often doesn’t make financial sense for farmers to pull back production. By the time investments in certain crops or livestock mature, supply could have already begun to swell or prices could have dropped dramatically.

Some farmers hope to ride out inevitable price swings. Rodney Schronk, a central Texas farmer who grows wheat, corn and other crops, began growing more corn despite a global oversupply and low prices. He acknowledges increasing his production adds to an already oversaturated market.

“Global markets are just flooded,” Mr. Schronk said. “It’s one of those situations where you choose what you’re going to lose [the] least money on. We still have to plant those acres. We have to eat. If everything works perfectly…we still can make a small profit sometimes.”

The hefty initial price farmers pay to get land into production or to expand production explains, in part, the excess.

“The farmer’s got his combine sitting there at $750,000, he’s got his tractor sitting there at $500,000,” said Houston-area farmer Allen Kaminski. “He’s got on hand what he’s already making payments on.”...MORE