Tuesday, February 21, 2012

Farmers still Doing Great on Oil Plateau

Kay McDonald points us to newsletters from the Kansas City and Chicago Federal reserves which have very interesting data on farm prices and farm incomes.  The graph above shows the year-over-year changes in farmland prices in the tenth district (Colorado, Kansas, Nebraska, Oklahoma, Wyoming, and portions of western Missouri and northern New Mexico).

The shape may remind regular readers of this:

Perhaps no surprise that when food prices go up, farms make more money and farmland becomes more valuable.  A good time to be a farmer.  Of course this is coming after a very long interval of misery for farmers.  This picture from the Chicago fed shows longer term farmland prices for the seventh district (Illinois, Indiana, Iowa,  Michigan, and Wisconsin):

Ignore the black (nominal) line and focus on the green inflation-adjusted one.  Farmers were on average losing money for decades following the peak of the 1970s, and so farms lost most of their value in the eighties and only reached the 1979 value again in the late aughties.  After a 22% increase in 2011, they are now well above it.

Overall, I take this data as confirmation of the views I expressed in the Fallacy of Reversibility a few years ago: that peak oil would tend to strengthen the industrial agricultural system by improving farm profitability via the biofuel channel.  As the plateau in crude+condensate production has continued since 2005, more data has accumulated and indeed farmers are making a lot more money than they were before then:
The year 2011 may go down in the annals of U.S. agriculture as a once-in-a-generation phenomenon. Undergirding the huge upward movement in farmland values was an unusual shift up in agricultural prices across the board. Not only did major crop prices move higher, but key livestock and dairy prices were higher as well. Corn, soybean, and wheat prices averaged 57 percent, 26 percent, and 45 percent, respectively, higher in 2011 than in 2010. Milk, hog, and beef cattle prices rose 23 percent, 21 percent and 21 percent, respectively, although producers faced costlier feed as well. (These figures were computed from U.S. Department of Agriculture [USDA] price data.) According to the most recent USDA estimates, these agricultural price increases helped set a nominal record for net farm income of $98.1 billion in 2011, a 24 percent jump above 2010 levels.
Of course there are risks in this.  Farmers will be taking out loans, signing leases on acreage, and buying equipment based on these higher valuations.  That means either food prices have to stay high - or go yet higher - or farmers will suffer.  There is a risk of bubble dynamics developing if farmers and investors get used to rising prices and start to feel that they are bound to continue.  And if food prices go higher, that will be destabilizing to some sectors of society, particularly poor urban neighborhoods.  That's what we saw in the Arab Spring last year - and while that may end up being beneficial to the societies in question (I think the jury is still out on that), there is probably only so much of that kind of thing that the world can cope with at any given time.


sunbeam said...

I'm not going to do any analysis on this matter, but I am going to throw out an idea.

A few years ago I read on one of the peak oil sites, an analysis comparing using a draft animal to farm, as opposed to using a comparable small tractor modified to use alcohol manufactured from some of the crop (corn would be best, but you get the idea).

The tractor came out as better than a draft animal in the amount of crop you had to sell at the end of the season.

The draft animal has to have acreage to grow food for it. You might argue you are growing broccoli or something that can't be turned into alcohol, but you would have to grow something for the animal on some acreage anyway.

Similarly if you use an alcohol fueled tractor you will have to dedicate some acreage to growing things just to keep the tractor fueled.

This was a more primitive, less global analysis than you did on the oil drum. It was pretty much aimed at the "40 acres and a mule" kind of farm.

Now I've been long winded, but I was thinking solar has progressed to the point where you wouldn't even need to bother with alcohol prodution.

If you google you can find some pictures and descriptions of jury rigged electric tractors with solar panels mounted on an overhead array on the vehicle.

I can tell you that it is still common to see people who do a little farming as a sideline where I live after work. This system would actually work really well for them since I doubt they run the tractor more than 10 hours a week at the most. When they are doing plowing in the spring, I doubt they do more than 20 hours in a week.

Harvest might be different, but I think you'd be able to come up with something to help (portable generator set?) during this time.

I'm just saying I think there might be some real opportunities for using solar PV with farming.

The engineer in me just got some visions of a tractor with an overhead array, pulling another array behind it to the fields. At lunchtime you could swap out batteries and let the spent one charge.

Anyway sorry about the derail. I just want to say in my opinion you are on the right track with what you are saying about agriculture.

Ael said...

Note that you can graze a mule on land unfit to grow a crop.

Michael Cain said...

Thanks for reminding me about the Fallacy of Reversibility essay, it was always one of my favorites. I've used similar arguments in other areas to suggest that "localize" really has to mean regions on the order of at least 30-50 million people, or it becomes impossible to maintain a wide variety of technologies.