The federal government for some time has buttressed the farm economy, especially in the nation's South and Midwest. Indeed for all practical purposes the government now defines the structure and conduct of agriculture in those regions as much as the market does. Evidence of that trend can be found in the evolving pattern of land ownership and capital investment. Government subsidies prop up land values, and make a capital-intensive sector of the economy even expensive. And that has led farmers and their bankers to favor the production of crops that the government subsidizes, even though the market may be saturated with those commodities. Exacerbating the situation is the growing productivity of foreign competitors. A profound case in point is the growth of South American agriculture.
America's soybean producers are nothing if not productive.
Harvesting nearly 3-billion bushels in 2001, U.S. soybean growers set a record for the third consecutive year.
But the huge crop, combined with increased competition from South America is crushing any chances of domestic price rallies this winter.
While a glimpse at the 20-year trendline reveals steady growth in South American Soybean Production, Brazil and Argentina have exploded in oilseed production during the past 5 years.
Since 1997, Brazil and Argentina have boosted their annual soybean production by more than 80-percent to 1.2 billion bushels.
During the same time period domestic soybean production increased by a modest 234 million bushels... or about 8-percent.
Latest USDA estimates predict 2002 South American soybean production at 70.3 million metric tons... up 8-percent from 2001.
Doug Jackson: " Prices really are bottomless as long as we have adequate supply..."
Long-time Market to Market analyst Doug Jackson claims much of South America's growth in Soybean Production is due to increased yields and aggressive acreage expansion.
Doug Jackson: "We have virtually unlimited acreage expansion potential in South America. In the northern areas of Brazil, the unplanted areas, the Sorato, the acreage that's unplanted is equal to the entire grain area in the United States. They could expand at the rate they've been expanding for the last four years, for the next hundred years."
While there is potential for weather-related rallies this winter, they're not likely to be large. Much of Brazil's crop is produced in a tropical climate, where abundant summer rainfall reduces the risk of significant declines in yields.