The supply and demand dilemma
Mar 01, 2010
When anonymous 1:25 a.m. responded to my Feb 5 blog by writing that producers might have only themselves to blame for over-production, it reminded me of an article I wrote 30 years ago. There have long been attempts to limit production to support prices. It’s not a good idea, not to mention it hasn’t worked. The more we limit production the more we put this country at risk. Our abundant food supply is a key factor in our economic and military power. This is not to suggest producers must carry the United States on their shoulders. It’s simply a relevant truth. If anything, the job producers do should be a huge source of pride.
More to the point is the question of supply and demand. Many industries overproduce to the point of unprofitability. It’s not just agriculture. The auto industry is a shining example. Yes, over-production is real and causes problems. The way to deal with it is not by producing less.
Ask yourself: Are you farming enough to justify the machinery you have? Have you invested too much? What is your cost structure compared to others? There have been a lot of profits in farming over the years. Admittedly, if you’re in western Kansas or eastern Colorado, or a place like that, it was tough to make any money during the long drought years. On the other hand, there’s been some good money made by central Corn Belt farmers. The point is simply that producers shouldn’t blame themselves for overproduction. Instead, if they’re frustrated by it, they might look at a different solution. There are universities and accounting firms that can help by looking at comparative record-keeping and figuring out where in your operation you could or should be more profitable.
Of course, being a little bit interested in marketing, I am always inclined to suggest doing a better job of managing both the opportunities and risks the market offers. Producers are certainly leaving more than a few dollars on the table. When I think about the amount of equity and profits that producers miss out on every year due to missed opportunities, it's no wonder people are frustrated by USDA reports.