More Land To Grow Cotton, Less For Other Crops

To state the obvious, there is only so much farmland in the US. The National Cotton Council of America says that farmers will plant 14% more cotton this year compared to last.

NCC Vice President Gary Adams emphasized that, “the cotton market is currently calling for more acres. However, competing crop prices are also strong. Final acreage decisions will be sensitive to how relative prices move between now and planting time. This, along with a number of other issues, including weather, could cause actual plantings to differ from growers’ stated intentions.”

Between the lines, and not so difficult to read is the admission of a plan to profit from rising cotton prices at the cost of acreage for commodities like wheat and soybeans. Price inflation in cotton may be somewhat undercut by larger crops yields. Lower supply for other agricultural crops caused by cotton planting will almost certainly raise prices as the amount of land devoted to them falls.

There is some hope that acres planted will rise as more land which the government has paid farmers to keep fallow moves higher. But, fallow land cannot be converted to crop production in a matter of months. Land supply will be limited to nearly the same amount as last year. It may be different in 2012, but in the world of rapidity rising inflation, that is a long way off.

Farmers have reached the point that metals, coal miners, and oil and gas company producers have. They must balance the cost of their crops with short term demand. They must also decide if they want to make higher profits while potentially upsetting the US economic recovery which will be hurt by a sharp rise in inflation. Like most business people, they will be tempted to take the money and run.

There was no way to see that the demand for almost all commodities would rise so quickly. Some of the blame for the increase has come from the needs of emerging nations which have rapidly expanding GDPs and increasing populations. Another part of the blame has been put on poor weather. The profit motive of farmers can be added as a third element.

Three forces to push agricultural commodity prices increases are too many. High crop prices will not go away.

Douglas A. McIntyre