The Reasons Why Agricultural Commodity Prices are Dropping – Tim Bellamy (08/22/2018)

The agricultural sector in the United Sates has been facing stressful years as prices of agricultural commodity continue to decline. USDA released a forecast that farm income will go down by 6.7% this year. It is a known fact that farmers bank on the sales of their produce for profit in order to sustain their farming needs.

This article aims for its readers to have a better understanding on why the prices of agricultural commodities are continuously dropping.

SURPLUS

Overproduction may be a good sign of a great harvest but economics would think otherwise. Having an over abundant supply of produce will result to lowering of prices most especially when there is a low demand. With the low demand, farmers will be forced to keep on lowering their prices in order to convert their produce into cash.

USDA Chief Economist Robert Johansson reported that: “Falling net farm income is largely the result of falling commodity prices [and] productivity is outpacing population growth and food demand.”

(https://www.southwestfarmpress.com/outlook/falling-prices-crop-productivity-driving-farm-income-outlook)

WEATHER

No amount of plant management can outsmart the weather. The weather’s unpredictability decreases the probability of having quality produce. Having substandard produce would mean low profit due to the decrease of the product’s market value. And what’s worst, the total destruction of crops resulting to zero or negative profit.

MARKET CHALLENGES

When the market has taken on too much debt, it will result to the destruction of demand. If demand is destroyed then the sales turnout will be low. In order for the produce to be taken in by the wholesale buyers, farmers need to lower down their prices and the conversion of this sales to actual profit will be devastating to the farmers.

Global recession also plays a significant role in the decline of the prices of agricultural commodity. An extended period of economic decline will decrease the purchasing power of the people. Thus, there will be shift on the demand curve because people will opt to buy cheaper alternatives to cut cost.

TRADE and INVESTMENT

Local and international trading maximizes the profit of the agriculture industry. However, some exporting issues seem to get in the way. Recently, China and Mexico cancelled their export of US soybean; the latter opted to get their soybean from South America. Changes like these greatly affect the profit cycle of the agriculture industry.

As Skunes wrote: “The expanded list of tariffs on exports is making America’s farmers the first casualties of the trade war between the U.S. and China. If the U.S. withdraws from NAFTA, there will be severe consequences for America’s farmers, and for our regional, national and global economies,” (https://www.usatoday.com/story/money/business/2018/05/17/farm-income-could-lowest-12-years-prices-fall/618204002/

One thing is for sure, the US government needs to pay a little bit more attention to agriculture – securing a more stable income and future for our farmers.



Share This Post