Wheat prices were dropping from too much supply partially attributed to newly expanded prairie farming in the US. But these farmers owed fixed costs on their mortgaged land. So to pay their expenses, they plowed up more prairie and grew more wheat. This compounded the supply problem. Eventually, as wheat piled up at railroad depots unable to be sold, farmers left the plowed prairie fallow and the topsoil blew away.
Source: The Worst Hard Time by Timothy Egan
This led to consolidation, whereby family farmers became much fewer in number, and those that owned and operated larger farms ended up working a 2nd job to cover their living expenses. What used to take a whole family to farm is now nearly entirely automated, causing food prices to continue to decline.
1 - https://en.wikipedia.org/wiki/Agricultural_subsidy#United_St...
I don't see the immediate causal relationship between these: cars are semi-automatically manufactured, but the price of cars hasn't declined anywhere near as much as grain/commodities.
A vehicle that I purchased roughly ten years ago has operated perfectly fine with half of its scheduled oil changes and very little other maintenance. From an engineering perspective I find that mind-blowing: you buy these machines and they operate flawlessly for years, running for thousands of miles, while performing a complex, mechanical task with many moving parts. It's easy to take for granted how marvelous modern automobiles have become.
I haven't considered that! I know it would affect production speed, which could be addressed by increasing capex to build more factories, and which could be funded by increased revenue or investment.
But here's the thing: this car talk doesn't help me understand how agricultural automation caused grain prices to drop. That's my question & what I continually seek clarification on.
BTW you can just ask me what I think instead of offering me some strawman claim to take under my wing. Argue in good faith! If a point of view sounds incredible to you, just go right ahead and assume I must have a more credible point of view that I haven't communicated effectively yet.
The reason I posted is that you did not seem to be. People kept giving you reasons, and you basically discarded them with "But that's not the reason I'm looking for"... or something like that. I'm not even sure how to accurately characterize it. But you definitely seemed to be just unilaterally dismissing the people trying to help you understand and putting no effort into understanding what they were saying. Your second paragraph of this very post reads like that once again.
If that is not the case, well, consider this useful feedback then.
The 'good faith' part which the responders are failing at is badgering me to accept their explanations of car manufacturing in place of farm automation. I accept their explanations but it does not help me understand this:
Why does the GP think that agricultural automation caused the decline in prices?
If I again get a response talking about cars: I don't get it. I don't understand. I can't work it out. I need help to see the connection. It doesn't make sense to me.
Please, help me understand instead of deriding me for not accepting an explanation about car manufacturing as an substitute.
* Increased mechanisation of farming -- direct muscle-power substitution.
* Increased fertiliser application -- removal of binding constraints on plant productivity (see Leibig's Law of the minimum).
* Increased pesticide application -- removal of parasite load and requirements for plant-provided parasite defence from production.
* Breeding for increased caloric yield -- given the reduced demands on non-food plant metabolic expenditure, more of that energy budget is channeled into high-yield varietals and cultivars. (Howard Odum has excellent discussion of pest/productivity dynamics in plant energy budgets.)
* Increased overall agricultural knowledge and management. Approaching the potential envelope by following maximally-effective practices. The ability to motivate large-scale activities quickly (e.g., harvest entire fields within days or hours of optimal state) factors into this.
There's also the fact that the energy substituted for human and animal inputs is subject to a natural capital draw-down understatement of 10^2 to 10^6 magnitude (and more likely the higher). Petroleum and natural gas prices (NG is the primary input to nitrogen fertiliser production) are grossly understated under current economic and accounting models.
For automobiles, the price reductions are less evident in large part because the starting point in the story occurs well into the inputs- and process-modification regime. If you extend the concept of "making cars" to "wagon construction and iron smelting" as of the 16th or 17th century, when wrought iron was fired by charcoal, not rock coal, you'd see fairly comparable efficiency gains. Metalurgy made tremendous leaps in the 19th century (Bessemer steel, 1860s, aluminium smelting, 1880s) as well, far in advance of generally affordable automobiles (1910s) and the explosion in automobile ownership (1950s, for the U.S., later elsewhere).
Robert J. Gordon notes that the rate of patent filings for both automobiles and aircraft peaked by the 1920s. Not that there hasn't been additional technical refinement, but the rate is markedly slower. (See The Rise and Fall of American Growth, 2016.)
Much automobile development has also gone into what I'd call technological "hygiene factors" -- addressing consequences of the initial concept development: safety, pollution, efficiency, and reliability. Another set of developments have gone into factors which influence surface appeal but do little for functional performance, call it bling. (Gordon also addresses, though IMO mis-attributes this factor.)
There are other factors. So long as automobiles are made of steel or aluminium, there's a fixed energy cost in their production (ore reduction, refining, and smelting). Until and unless the underlying materials are substituted, that will remain. Actual assembly is fairly straightforward, and Henry Ford had already done a great deal to optimise assembly-line methods. The increased use of robotics substitutes more for the control element of labour than the energy input (as was the case in ag), resulting in more precision and consistency (and enabling greater complexity -- the Jevons Paradox). The cost of actually programming automated assembly equipment has (at least until recently) rivalled the cost of the robotics themselves. "Cheaply programmable" had not been a feature.
Upshot: Farming as of 1920 offered far more opportunities for optimisation than automobile manufacture did. Automobile manufacturing saw additional, non-performance features added. Automation substituted for different factors than mechanisation. Corn and wheat don't demand cupholders, electric windows, in-vehicle entertainment, and self-parking systems.
You'll see this phenomenon any time an economic agent (individual person, labour market, farmer, extractive resource operator) has some inflexible and fixed minimum set of costs to maintain or they will go out of existence, vs. some variable production function or market price structure.
It's similar with the general aviation phenomenon of "failure to maintain altitude". Aircraft fly fairly well through air. Performance characteristics through land or water are rather less optimal.
There's a great episode of The West Wing about the Iowa caucuses and the ethanol mandate.
We may have reevaluate growing corn in the future if the market does dry up (although for crop rotation purposes that is a hard choice to make), but when the market is buying it at a profitable level, why wouldn't we grow it?
This provides a price insurance for farmers. This year's price was set at: $3.96 per bushel for corn and $10.19 per bushel for soybeans (reference - http://www.wisfarmer.com/story/news/2017/03/08/corn-soybean-...)
So with the support prices, unless the yield prices goes below support, people will still grow corn.
As how does it affect Canada? For one, Canada will surely be having it's own insurance program. Second, It is a simple arbitrage play, if Canadian supply is cheaper people will buy cheap corn from there and import to US.
Curious what price level you would say is unprofitable to grow corn?
The main one is production insurance, protecting against disaster events like weather. It doesn't focus on price. Of course, it applies to all crops, not just corn, providing incentive to grow something – whatever is profitable due to market demands – but not corn specifically.
In the last few years there has been an addition of a program that sounds more like you describe the US system, but it seems ill-conceived and not clear how you would ever get your premiums back. I have not enrolled in it personally. It definitely is not impacting my decision to grow corn.
> if Canadian supply is cheaper people will buy cheap corn from there and import to US.
Naturally, but that only works if there is demand. The parent seemed to be suggesting that the US government subsidizes US farmers to grow corn due to the absence of market demand.
> Curious what price level you would say is unprofitable to grow corn?
I would say the breakeven point is somewhere around $4.50/bu. for my business. I have most of my corn crop sold at $5 this year, so I'm comfortable with those margins. Wheat is the crop that is going to be a money loser for the foreseeable future.
Interestingly, no. Canada subsidizes farms, whereas the US subsidizes crops.
This is entirely why the ethanol subsidy remains. I have high hopes the electric vehicle movement kills this.
Because much of corn is turned into HFCS, which is so cheap it's added to everything, which is causing a huge spectrum of preventable diseases, such as metabolic dysfunction, which in turn is partly the cause of bankrupting national healthcare programs?
As you would expect, marketing corn is more challenging now, after the boom, but there is still opportunity for money to be made. The thing about these crops is that the market price can swing by fairly large amounts in the matter of days, so the fact that a losing venture today can become a huge profit opportunity next week keeps people interested.
There is no lack of people keen to buy land and equipment if someone really wants out of the business, but we're not that bad off yet.