Are Farm Prices Destined to Rise as More People Compete for Food?

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“You know, everybody thinks we farmers are making a killing this year,” he began. “Prices are the highest we’ve ever seen. Grains are about 70% higher than a year ago. But we’re not getting rich. Because the prices we pay for fertilizers and other inputs are also through the roof. Besides, farming is always a boom and bust business. When prices are good, we use the extra money to replace our worn-out tractors and other equipment. When they are bad, we just hunker down. We never end up with a lot of free cash.”

One of the ideas, recently very popular, is that farm prices are destined to rise as more and more people compete for food. We have said so ourselves. But now, we’re not so sure. There is huge untapped capacity for food production.

“Land rush transforms rural Russia,” is a headline in today’s International Herald Tribune. The accompanying article describes how Russia’s collectivized farms are being taken over by agricultural enterprises. Russia is an enormous place, but its collectivized farming system has been a disaster. More than 86 million acres of farmland has been allowed to go fallow. And even where the land is farmed, the yields are pathetic. Were its farms managed correctly, Russia could quadruple today’s output per acre…while putting millions of more acres into production.

From a purely economic point of view, the collapse of communism was one of the worst things to happen to American. As long as China and Russia were red, the U.S. had no significant economic competition. Their crackpot agricultural ideas lowered farm output so dramatically that Russia – which had been a major grain exporter under the Tsar – practically starved under the commies. And China, while it was under the spell of Marx and Lenin, exported nothing but trouble. Now, it is the world’s leading exporter of finished products.

We mentioned last week that Russia – after being broke and defenseless 20 years ago – is getting back on its feet. With money and energy to burn, it is asserting itself in Ossetia.

And soon, Russia – with 7% of the world’s arable land – could not only be one of the world’s greatest energy exporters, it could also be one of the world’s leading exporters of food.

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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