The global financial crisis is putting further pressure on global food supplies. At the same time, food prices have not increased as fast as farm supplies like fertilizer, feed and the cost of land.
The situation has put many farmers in a position of losing money month after month. If things don’t turn around quickly, many farmers could be forces out of business – reducing the global food supply even further.
I live in central MN, surrounded by farmland and so I should have an understanding of the farming industry. My grandfather was a farmer and many of my extended family is still in the farming business. Yet, it has been hard for me to get a clear picture of how the farming industry is going to be able to make money, even though the world is running out of food.
Just the other day I was talking with a friend about the farming and how I think the farming industry will play out.
Farmers are very aware of government policy because their business is so dependent on the actions of the government. Back in the Clinton years, and even before that, many government programs were created to support and subsidies the farming industry in order to protect the food supply of America. The current government programs create the largest competitive advantages and disadvantages in the farming industry. Farmers have no choice but to understand and use the government programs.
Farmers have to understand the direction of the economy well in advance to make business decisions that will produce a profitable product several years later. Farming today is big business. Most farms today are thousands of acres and valued in the millions.
Because of this, farmers are looking at the global food supply and trying to figure out how best to make money with respect to the recession.
The Dollar Collapse
The recent decisions of the Obama administration and congress to increase the budget deficit to$2-3 trillion dollars just in 2009, followed by the Federal Reserves actions to monetize the debt by printing money and buying trillions in Treasury Bonds, has painted a clear picture of what is about the happen to the value of the dollar. The only question is if the US economy is going to rebound or not. The answer is very important to making decisions about farming.
American's Will Not Be Able to Purchase Expensive Food Anymore
I believe the key to making money in farming will be to understand that the dollar is losing value, while the US economy will continue in recession, yet the world is flooded with dollars that they don’t want and the world is very hungry.
The demand for food that can be exported will continue to increase, while the demand for expensive food consumption in America will continue to decrease.
The demand for wheat, rice, corn, beans, etc. will increase along with the prices as the value of the dollar drops and the world is become more willing to get rid of their dollars. This will not be a good thing for US consumers, because it means that the prices of our food will continue to increase very quickly. It will probably lead to shortages in large cities and force the government to try to limit prices and supplies. More and more people will turn to gardening and eating cheaper foods.
But, farmers will be able to sell these foods at high prices because the world will be willing to pay high dollar prices for the food that they desperately need. If you are in the farming industry, these are the foods to invest in.
At the same time, rising food prices will cause American’s to cut back on expensive foods, like meats, milk, sea foods, etc. These foods are also not as easy to export. Therefore, many dairy farmers, pig farmers, cattle farmers and fish farmers will be forces out of business. If you are in the farming industry, stay clear of investing in these food groups.
Unless the US economy rebounds, which I don’t believe it will for many years if at all once the dollar loses its Reserve Currency status, these food groups will continue to decline.
The Government Will Be Desperate
Just as the farmers start to get this figured out, the government will be looking for profitable industries that they can tax. So, the farmers that work hard to make good business decisions will be looking at higher property tax, lower subsidies and government price controls - forcing them to sell their food at lower prices then they could on the global market.
None of this will be fair, but that's how socialism works. The government will be desperate for money and will take it from anyone that succeeds, which of course reduces the incentive to try in the first place and leads to more laziness and more government programs to support the lazy.