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Senior Contributor

Forces Affecting Change in Crop Production Agriculture

Choices magazine has a very interesting article by the same title as the subject line which talks about how crop production agriculture is being reshaped in the U.S.  It's only a few pages and reads easily and quickly, so use the following snippets as a teaser and don't skip the main article.

 

"Four dominant forces are currently at work—Growing and Diversified Demand; Technology; Resource Availability; and Societal Influences. "

 

"The competitive rivalry plays out most clearly in bidding for productive resources. Here, producers typically bid most of their long-term potential profitability into the price of fixed assets such as farmland."

 

"While still limited in number, there are more farm management companies pursuing large scale farmland investments operated through both internal and external management arrangements. Funding for these enterprises increasingly comes from equity markets. The relative ease with which parties with access to capital can enter crop production will limit the upside profitability potential for current producers."

 

"While competition in the customer segments will keep buyers from significantly influencing the general market, the number of producers in a given crop producing area and the lack of differentiation make bargaining against customers very difficult without significant scale. "

 

"While scale efficiencies normally suggest expansion of the farming operation size, producers will also have to purposefully improve the productivity of the land they manage."

 

These are only a few excerpts from an interesting article, and they don't give the flavor for the whole article, so do yourself a favor and read it.  I think you'll find it interesting, whether you agree with it or not.

 

http://www.choicesmagazine.org/magazine/article.php?article=152

 

 

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3 Replies
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Senior Advisor

Re: Forces Affecting Change in Crop Production Agriculture

Good "observation" Jim !

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Contributor

Re: Forces Affecting Change in Crop Production Agriculture

Beginning to remind me of the housing bubble

 

when the outside money starts flowing in at a rapid clip, you have to question whether the current level of returns (rent plus capital appreciation) are sustainable .....after all, that is what those investors are banking on ..

 

we just went through a 10 year period of time where farmland ownership compared quite favorably to many other investments, including equities if measured against a variety of common index products.

 

well......maybe this time it's different

 

I remember back in the late fall of 2008 and wondering about the previous may/june time period----how was it I could not comprehend that we were in a bubble of immense proportions??

 

Good luck to us all!

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Senior Contributor

Re: Forces Affecting Change in Crop Production Agriculture

It's interesting you bring this up.  A couple of weeks ago, I was reading an economist that was wondering the exact same thing.  Goldman Sachs quarterly profit was way down.  The biggest reason for this is the fact that Goldman has their smallest commodity length exposure since the first quarter of 2004.  He went on to state that JP Morgan was in the same boat.  Then, he talked about Cargill selling Mosaic at a time when everyone and their dog is trying to get into agriculture.  He came away with the same questions.  What do they know that none of the rest of us do?  I believe it was Warren Buffet that said something like be fearful when everyone else is courageous and be courageous when everyone else is fearful.   

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