Those that have been flying high on the back of high priced corn are in for a rude awakening. Three dollar corn is back to stay for a while — weakening agronomics from land values to equity debt.
But never an ill wind that doesn’t blow some good. Livestock producers will be the benefactors — those that didn’t throw in the towel have already reaped good fortune, but lower feed cost will have them dancing all the way to the bank.
Empty feed lots will ll up and flourish like never before. They never would have gone empty in the first place if livestock producers had enjoyed the safety of AGRONOMICS, like that of grain farmers.
But subsidies have never been a part of the thinking of hard working livestock producers who have always learned to stand on their own two feet, away from the greed of subsidies and bail-outs. On the other hand, $3.00 corn will savor the cries for help. And if out of control agronomics doesn’t get reined in, you can be sure that government is going to have to step in and take over the meat and livestock industry–just as it has housing, automobile, and banks.
We know what a mess these industries have become because of government intervention. Let’s not let $3.00 corn give them an excuse to do the same to agriculture. Are we going to sit back and let it happen to us?
Stimulus packages and bail-outs have provided nothing more than a temporary band-aid to prolong the inevitable. Eventually every industry has to stand on its own, even if it means collapsing and starting over.
Unfortunately the small get more adversely affected than the big, as they are unable to take advantage of volume discounts and price protection. Dealing in partial load lots can get expensive, as they‘re always out of compliance with purchase and sales agreements and/or contracts.
Knowledge is the key to the future of agronomics. We are now a cyberspace world market that is ready for change and adaptation to foreign market conditions. This moment in time presents a rare opportunity to reach out to markets that here-to-fore was never available. Our planet is not just getting smaller and more accessible, but is also becoming smarter. This means that the difference between being big or small is simply a matter of being able to take advantage of the volume marketing options. The bigger you are, the greater the purchasing and selling power you have. Marketing tools, like risk management and contracting direct to a packer, are hard to make t into a pickup truck and pull-behind stock trailer.
When you’re at the mercy of just selling a few head at a time you can’t comply with contract specifications for sort, weight, and grade, or minimum contract weights and numbers. You’re simply vulnerable to local market conditions, for which there are no bargaining chips. You take what you can get on any given day, pay for the privilege of doing business with someone, pay for the shrink. Pay for the sort, and you pay for buyers’ remorse. (He’s out to beat you if he can.)
All this paying usually amounts to more than $100/head. That’s more money than the big guy expects to make. If he can lock in a pro t margin of more than $100, he’ll lock it in and run all the way to the bank. But to lock in a sizable pro t, you have to know the cutout value of your grade and weight, and be able to sell in contract size lots. This is true even when you use a combination of hedging and contracting. So you can see why the little guy just doesn’t have a chance. To leave his pricing to the daily whims of the market, plus leaving another $100/head on the table for the vultures to clean up, is there any wonder why the small producers are leaving the agricultural scene at a record rate? All of this, simply because they aren’t big enough to participate in price protection, and sell direct to a packer.
It’s a sad commentary here, for there is no better life than that of living on the farm, but for the small operator it‘s becoming nothing more than a memory. You have to face the facts before the hole gets dug so deep you can’t crawl out. Adding a few more animal units or a few more acres to an already large operation simply spreads the fixed overhead and reduces the per-unit cost of production.
The cost of production declines proportionately with volume, so it‘s not too hard to understand the small farmer dilemma: Hardworking, honest people that will probably have to face some tough decisions. The decision becomes emotionally more difficult than that of agronomics, but they’ll make the right choices and come out of it just fine.
The movement of technology is going to keep us on this fast pace toward fewer and bigger for as far into the future as we can see. The computer age already has technology embedded into supply chains that are monitoring meat from the farm to the super-market shelf. This kind of transformation is just beginning and its benefits will be reaped throughout the world.
The engines of economic growth will drive agronomics to a higher level than we even imagine. This is an opportunity not to be frowned upon, but welcomed as an opportunity to be seized with passion to pursue economic growth, social progress, and environmental sustainability. Farmers have been on the take for a long time, so terms like bail-outs and stimulus money have a totally different meaning to them. They have seen the misappropriation of funds go to the rich and bypass the poor. Millionaire farmers continue to reap subsides, while livestock producers continue to go it alone. (Reportedly there is a wealthy sports team owner receiving a total of more than $200,000 in farm program payments. This has gone on for several subsequent years and isn‘t an isolated case.) Other major financial players in unrelated businesses have been indentified as the benefactors of millions of dollars in subsidies. (Maybe the Clippers can save themselves from self-imposed self-destruction?)
This has contributed to the demise of the small farmer and indentified the big farmer as being too big to fail. What will it cost? It has weakened all of agriculture, and destroyed those not big enough to qualify for the financial band-aid that will end up in the grubbiest of hands. The fall-out is as much emotional as it is agronomics.
High priced corn has given even the small producer a false sense of security, as he has made money in spite of himself. But now, as reality is setting in, it is time to stimulate our economies and rebuild our infrastructure on a foundation of cheap com.
To learn more about this, make plans to attend one of our livestock marketing seminars — together let’s prepare for a better informed more knowledgeable future!
(Editor's Note: For more in-depth information regarding the topics that have been touched upon in this report, Knightro conducts livestock marketing seminars on a regular basis. To schedule a seminar, auction, judging, or speaking engagement, please contact Ken Knight, Knightro, call or fax 715-262-8480; e-mail [email protected], or write him at: Ken Knight, Knightro Report, 136 Hillridge CT, Prescott, WI 54021.)