Farmers often talk about how we are the only group who do the opposite of what the price signal is telling us, and produce more when prices are cheap. |It occurred to me that oil producers, miners, big forestry companies, even most of the downstream livestock industry, have the following in common:
They cannot logistically, and do not, store a year or more of production.
They rarely if ever produce a product that isn't already pre-sold.
Therefore, if they don't have the ability to pre sell it for a profit, or pre sell it at all, and no ability to store it, they won't produce it.
Contrast that with a farmer, many of us are in the grow it bin it sell it camp, hope marketing plays a big part. In spite of current and future prices that are telling us that the market is oversupplied, we will continue to seed a particular crop and store it for a year or even multiple years with the assumption that prices will eventually improve. Contributing to a large carryover in an already over supplied market, guaranteeing lower prices for years into the future. Obliterating all market signals which effectively tell other commodity producers to cut back.
The obvious, if completely impractical solution is for farmers to pre sell everything, and for farmers not to have any of their own storage. Solutions that work much better for commodities that are produced year around, as opposed to in one big lump, and not practical here where elevator capacity is woefully inadequate and distances completely impractical. However, even if there was no spot market, and we could only deliver what had been presold before seeding, I suspect the supply situation would get back into balance much quicker.
Certainly not advocating forcing farmers to do anything, and i know it is not workable in our industry, but we can't really blame our input suppliers for effectively responding to price signals and cutting back production in advance, and not stockpiling excess production to hang over the market, when we do the complete opposite.
They cannot logistically, and do not, store a year or more of production.
They rarely if ever produce a product that isn't already pre-sold.
Therefore, if they don't have the ability to pre sell it for a profit, or pre sell it at all, and no ability to store it, they won't produce it.
Contrast that with a farmer, many of us are in the grow it bin it sell it camp, hope marketing plays a big part. In spite of current and future prices that are telling us that the market is oversupplied, we will continue to seed a particular crop and store it for a year or even multiple years with the assumption that prices will eventually improve. Contributing to a large carryover in an already over supplied market, guaranteeing lower prices for years into the future. Obliterating all market signals which effectively tell other commodity producers to cut back.
The obvious, if completely impractical solution is for farmers to pre sell everything, and for farmers not to have any of their own storage. Solutions that work much better for commodities that are produced year around, as opposed to in one big lump, and not practical here where elevator capacity is woefully inadequate and distances completely impractical. However, even if there was no spot market, and we could only deliver what had been presold before seeding, I suspect the supply situation would get back into balance much quicker.
Certainly not advocating forcing farmers to do anything, and i know it is not workable in our industry, but we can't really blame our input suppliers for effectively responding to price signals and cutting back production in advance, and not stockpiling excess production to hang over the market, when we do the complete opposite.
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