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Al Kluis: Crop revenues increase to record levels

Al Kluis 01/11/2011 @ 11:00pm

In the 36 years I’ve been working with farmers, I have finally figured out what most crop producers want each year: They want a big crop and a big price. But that’s rarely happened. That’s because farmers had high prices when they had poor crops (or they were already sold out) or they had large crops and low prices.

In 2005, I began to see changes in the grain markets. The market was always well supported when prices dropped back after negative reports. And I was impressed with how fast prices could go up when the news turned bullish.

I knew that for the individual subscribers I worked with, it was yield × price – or in other words, crop revenue per acre – that counted. So I began to chart revenue per acre, and then I began looking at total revenue charts of the entire U.S. corn and soybean crops. What I noticed was corn and soybean crop revenues really took off after 2000.

What Caused The Increases?

I can list three primary factors that caused the climbs. (Note: I will refer to the total crop revenue for corn and for soybeans as though they are each a company: U.S. Corn Inc. and U.S. Soybean Inc.)

1. China. The increased demand for more protein in China and the fact that it now has the ability to pay for this protein were the major game changers for U.S. Soybean Inc. In this year, China also started to become a major factor for U.S. Corn Inc.

2. Increased supply and increased productivity of U.S. corn and soybean farmers. The world needs more corn and soybeans. And with today’s seed and technology, U.S. farmers will increase acreage and manage each farm to maximize yield. If Mother Nature cooperates, the U.S. will produce the 14 billion bushels of corn and the 3.6 billion bushels of soybeans the world needs by 2013.

3. Freedom to Farm ag policy. With the government encouraging farmers to plant for the market, producers increased corn and soybean acres at a time when the world needed more of those crops. Sure, the U.S. has major competition from South America, but with the global increase in food demand, these increased supplies are all getting used up.

Can Record Levels Last?

As long as the demand from China, India, and other developing nations continues to increase, yes, record levels can last.

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