I'm a global grain trader living in Geneva Switzerland, where somewhere around 50% of global raw food materials are traded.

Trust me when I say this is real.

There's been a massive over supply of agriculture products around the world for the past 3/4 years.

any idea why?

Yes.

In 2008 and 2011 there was shortage (weather issues) and price spikes. Farmers around the world -- from Ukraine to Brazil to the US -- made a huge amount of money and invested in technology (new farm equipment, better seeds, etc).

In the meantime the weather globally has been perfect. Beyond specific local situations worldwide it has been perfect and the technology has only added to production.

There will be a problem in the future but the reason American farm bankruptcies are high is that the prices are beyond low and the production levels are lagged (they're based on past conditions and take time to correct). Currently it's beyond bad for large scale producers.

This is an actual issue. In the future the failure of producers now will lead to shortage ... and so begins a new cycle.

Curious: I have had a couple of conversations with people (not arm chair quarterbacks - knowledgeable, but not expert) about pro & con of supply management systems as enacted in US and Canada (triggered by recent trade talks). This sort of cycle was brought up as a "pro supply management" - if we leave it strictly up to somewhat free and somewhat global markets we inevitably get these boom/bust cycles, but they can be avoided by management boards and the like. Do you think it's accurate?

It is not only accurate, but agriculture is pretty much the worst case.

The problem is that demand for food is rather inelastic. You are going to eat when you are hungry, and if you're hungry enough you'll pay whatever you can for that next meal. But food production is highly variable. For example the 88-89 drought in the USA dropped food production by 29%. Therefore to have enough food in a bad year, we have to be willing to overproduce in a good year. Which means that we guarantee an excess supply, and therefore a very low free market price.

How we get there is arbitrary. We can subsidize exports, we can buy up food to throw it away, we can pay farmers to not grow food in good years. All of these are done somewhere. There is no first world country that doesn't do at least one of these because everyone understands that it is a national security issue - if your people go hungry you're likely to get civil unrest.

As a concrete demonstration, consider the Arab Spring. One of the contributing factors was that China had a severe drought. To ensure their political stability, they bought wheat on the international market. Thanks to the laws of supply and demand, the cost of wheat doubled. Poor people in Arab countries that couldn't subsidize their citizens suddenly went hungry. They revolted. See https://en.wikipedia.org/wiki/Impact_of_the_Arab_Spring#Chin... to verify this sequence of events.

Management boards have not worked historically. One example might be the Australian Wheat Board. A second example is the Canadian Wheat Board.

On the supply side production management has not proved successful that I'm aware of.

The demand side is a little different. Egypt is the world's largest importer of wheat and GASC (basically the same as the production boards but for buying) has generally been one of the best traders. They're good for the most part. They're generally clever.

Free markets work best in my personal opinion. But for production side I don't see broad-scale management working, while on the consumption side it actually can work.

I find it ironic that your example of "it actually can work" is a country that recently suffered a revolution after the price of wheat doubled due to a drought in another country.

What would you consider a failure?

Well, there's a lot behind Egyptian food problems beyond trade policy. That's a really deep issue and quite interesting on its own.

I merely mean that economically the supply side is harder to manage at a board/national level than the demand side. Has a lot to do with many many producers but only a few companies able to import.

I disagree.

The problems managing the supply side tend to be very predictable - they happen most years. So you constantly see problems but they are manageable.

The problems managing the demand side are unpredictable. For many years you'll be going along fine, but when you have a problem you tend to have a BIG problem.

Of the two, you're better having manageable problems most years and no big disasters than having things usually go smoothly but occasionally you get a disaster.

Same here in missouri. We had 2 dry summers in a row, then a wet harvest time this year.

Hay prices are up over double last year and last year was up from the previous year. Last year for example I would have been happy to buy $25 a 5x5 round bale. This year if you can find them, they're $90-$100. Small squares 2 years ago were $1.25, this year I happily paid $4.

Why would farmers extend themselves so much that one bad year breaks them? Why wouldn't they set aside some of that good money so in bad year they could still pay the bills?

Equipment is an insane cost. That's why there are so few new farmers. The start up cost is astronomical. A combine, for example, can run to $400-500k — a piece of equipment that taking up barn space for 48 weeks out of the year. Add in your tractors, planters, spreaders, sprayers … add on top of that your land costs. Many farmers don't own all of their land outright, they hold medium/long term leases. Miss a single year lease costs and you lose the land, which forever drops your future earnings, lowering your margins, and bringing you closer to bankruptcy. There's a minimum amount of land you need to farm to even break even. You add more acres in good years to maybe save up enough for equipment replacement, or a new truck.

When you lose the land, lease, or go bankrupt, your land gets snapped up by huge corporate farms that can run at a higher margin, driving down food prices over the long term, making smaller farms less and less viable.

Why would a farmer own a combine? Aren't they owned by specialized harvest outfits? I don't have any experience in the business but when I was a kid and we needed the hay cut and baled we called the guy who brought in the hay baler on a low-boy. Nobody owned their own.

Rent vs. Own comes down to controlling your own harvest: renting means you may miss out, sometimes by weeks, of optimal harvest. You may have had to book a harvest weeks or months in advance. You may have to fork over cash months in advance. You may have to pay even if a field's yield is ruined due to summer floods.

If you own, you can select even segments of fields to harvest at more optimal times (a down grade, or wetter, portion of a field may harvest differently than an uphill, drier portion).

It sucks either way.

Modern agriculture depends a lot on financing for machines, seeds, implements, even labor. Banks and suppliers will use this to get as much as they possibly can from farmers. And if you don't get financing you simply cannot produce anything. This guarantees that a bad year is enough to break most farms.

You should watch Food, Inc. on Netflix. They have a segment on Monsanto and how farmers have no choice but to buy seeds from them but the prices are so high most farmers are barely able to keep their businesses running even with subsidies from the Federal Government.

The farmers I know watch their finances closely. Because the yields are better they make more money buying from Mansanto despite the higher price of seed. You cannot be a successful farmer without paying close attention to the bottom line (unless you already own all your land).

Food inc is a rage piece. You can buy whatever seed you want. Does it yeild like shit? Sure does. You WANT to buy next gen seeds every year.

Have you watched it? Seed yield has absolutely nothing to do with the scene I was referring to.

https://www.huffingtonpost.com/2013/02/20/supreme-court-mons...

Centuries of financialization in agriculture are working against smaller farms.

That is what the farmers that didn't go bankrupt do.

If they did that year after year they won't be a small struggling farm on a verge of bankruptcy but a promising farming conglomerate.

If they did that they wouldn't be farmers loving their craft but business owners that happened to own a farm.

If that's a hobby for them then they are just gardeners. If they are gardeners, then I sincerely hope that they get zero consideration from those who are supposed to help farmers.

Gardeners tend to gardens, so even for pro vs hobby that's not the distinction you want to make.

But even the intention behind the distinction is wrong, as not wanting to be a huge agricultural business doesn't mean you're not professional.

In fact, quality-wise the smaller shops can be much more professional. So, no, actually, those are farmers, of the kind with the smaller lots, that have always been there and fed humanity for millennia.

The other are just big business conglomerates who don't give a fuck about farming and just happened to be in the agriculture business -- and will do anything to drop their margins and sell crap.

I hope that they get zero consideration from those who are supposed to help farmers, and hopefully are driven out of farming.

What makes it a business vs. hobby is inability to plan for the not great years. Business is farming. Hobby is gardening. Even if it is on a large scale.

The ability to plan for the "not great years" and to succeed or fail in that plan is totally orthogonal.

Big businesses have failed to do so, and small family shops have survived for centuries...

So, taking a bit hit, or even dying, on some "not great years", is not a criterion for business vs hobby at all.

The other thing I've noticed in Wisconsin, the kids don't want to take over the family farm. And quite frankly farmland is hard to sell unless it is for development. Sometimes a neighoring farmer would consolidate but it is low value land. The equipment is probably worth more in a lot of cases.

I grew up on a farm, I'm one of 4 kids. My brother is now a farmer, and my brother-in-law took over my dad's operation. But really, only two could stay on, the rest of us had to find our own way, as the pie is only so big. Same for small farm towns, there is a normal attrition, where most of your best-and-brightest kids leave town and don't return. The rest stick around. Some become farmers, most other become supporting staff (mechanics, truckers, feed sales, etc) for the various farming operations. So the towns don't grow much, if at all.

I agree with you. Here in central Michigan they've begun construction of a huge cheese plant will purchase 20-25% of the state's milk. Add to that the drastic slashing of the Canadian dairy tariff and people are cautiously optimistic.

https://www.freep.com/story/money/business/john-gallagher/20...