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Land wisdom needed

The U.S. trade system has its faults, but it does serve to balance supply and demand. Short term hiccups are quickly pulled back into line as all the market players do their thing.
By Susanne Retka Schill | November 07, 2011

The monthly supply/demand report is due this week, and at least one pendant says the trade is bracing itself for another surprise. It’s been one of those years, with the USDA narrowing in its projections as the weather kept prognosticators on their toes. Just how badly did the late spring and hot summer impact the crop? Certainly, some areas were badly affected, but will that impact be localized or more broad spread? If the heart of the Corn Belt still has a decent crop, that blunts the problems in other regions.

I did read an interesting story that suggested farmers were seeing the poorest yields from corn-on-corn plantings. With the extra inputs required for corn-on-corn, that’s not good, and will no doubt prompt farmers to keep corn in rotation with beans, and thus, keep the balance in crop acres. That balance appears to be holding steady, although all crop prices have risen to keep in alignment with corn.

There’s some advantages to having thousands of farmers making individual decisions on what’s best for their farms. I haven’t been to Brazil, but I gather sugarcane plantations make our biggest farms look modest. It appears the corporate decision makers lost land wisdom. This week we covered a report about projections for the recovery of the Brazil sugar crop being tempered by the realization that many plantings were not renewed when they should have been. Yields are forecast to be 20 percent less that the historical average of 85 tons per hectare.  Yes, sugarcane plantings run for several cuttings over several years, but they eventually peter out and need to be replanted.  Drought exacerbated the supply problem, but it appears short term profiting won out over land wisdom.

The end result is that it will take longer for Brazil’s sugar crop to recover and catch up to increased demand, particularly in domestic ethanol use. The situation has created an opportunity for U.S. ethanol exports to fill in the gap.

The U.S. trade system has its faults, but it does serve to balance supply and demand. Short term hiccups are quickly pulled back into line as all the market players do their thing. Here’s hoping the U.S. system continues to have plenty of players, so it can do just that. I would hate to see farms grow so big that, as appears to have happened in Brazil, land wisdom gets lost in a corporate boardroom.