Issue link: http://read.uberflip.com/i/299634
www.potatogrower.com 45 The Right Way Private-market vs. governmental approach to agricultural pricing UNITED STAND by Jerry P. Wright, President & CEO, United Potato Growers of America Watching the government panic about plummeting commodity prices these past few months, and what the cost to govern- ment might be—actual cost to taxpayers and governmental borrowing—as a result of obligations embodied in the new farm bill, it is striking how complicated such a simple issue becomes. In the economy of agricul- tural commodities, price falls because of: a) insufficient money to buy; b) collapsed demand, or; c) an oversupplied market. While other factors marginally enter the equation, these overwhelm all others. First: Other than cotton, most commodi- ties—rice, wheat, corn, soybeans, peanuts and so on, are foodstuffs, and U.S. citizens have plenty of money to buy food. Second: Demand among basic foodstuffs remains amazingly constant. This leaves only one price-killing issue to be solved: market over- supply. Sterling Liddell, commodity analyst for Rabobank and chairman of the World Commodity Forecasting Board, supported the reality of commodity-market oversup- ply at the Potato Business Summit held last January in San Antonio. Liddell reported that corn for ethanol has accounted for one- third of global grain demand growth since 2005, but that ethanol as a fuel blend has hit a U.S. "blend wall." Worse, U.S. on-farm storages now hold corn in record amounts, mostly unpriced, giving the U.S. corn market a 75 percent chance of oversupply in 2014. Global soybean stocks appear balanced, but with Brazil's cheapening prices, China is expected to cancel significant U.S. contracts, opting for cheaper Brazilian supplies, thus giving soy a 65 percent chance of oversupply in 2014. With the problem of over-supply clearly delineated, the obvious solution is to simply bring supply in line with demand, and price will take care of itself. Rather than doling out taxpayer dollars or money borrowed from China to subsidize an already over- producing industry, Farm Service Agency (FSA) needs to report to each county just what that county's production should be of each commodity to attain stable and profit- able pricing. FSA has sufficient yield and acreage history to dial this estimate in very tightly. No farmer should be fined for disre- garding the suggested volume; his glutting of the market will take care of that. Should the farmer not produce enough, too short a supply will raise price such that imports or increased production will immediately step in to fill the gap; hence, the consumer always wins and is not stuck paying for buildings full of unneeded bureaucrats. University of Idaho agricultural economist Dr. Joe Guenthner told potato growers years ago that for every 1 percent change in supply in either direction, price moves about 7 per- cent in the opposite direction; as supply goes down, price goes up. This formula has empiri- cally proven itself countless times in the pota- to category alone; those growers who know and follow this formula prosper by it. It's time that growers of all commodities aligned their fortunes more with Dr. Guenthner's formula and less with Washington's. PG LoganFarmEquipment.com/potatogrower/ win ENTER AT simple smart strong (866) 252-0414 @loganfarmequip