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What do you propose as an alternative to low prices to balance supply and demand?
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emtbd1979
Posted 5/3/2015 12:20 (#4549575 - in reply to #4549531)
Subject: RE:A price signal works well if it is timely and not manipulated.



west central illinois
1234 - 5/3/2015 10:43

  Take cattle & beef for example,  industry consolidation allowed packers to hold down the price far too long until herd reduction was too extreme.   They used the beef from cow herd reduction to keep beef prices low.  It was a positive feedback loop.  The lower the calf price the more cows got killed, making more beef available and again lowering the price of calves.  Without the consolidation and the ability to control the cull cow price the cycle might not have been so deep for so long.  
   Grain prices are manipulated by government subsidies & crop insurance.  That purported $60 payout expected by the Midwestern producers can go to paying interest on production loans & land rent thus motivating producers to keep production up higher and longer than necessary.  Crop insurance in and of itself is important tool to protect individual producers from catastrophic losses and to that extent stabilizes production but when it is too lucrative it removes too much risk and promotes excess production.  In my opinion, the current subsidy system isn't designed to stabilize production but simply a political tool to push money into depressed rural areas.
  For instance here in NY due to historic circumstances only about 20% of our farmland has base ( most small dairy farmers just didn't sign up in 1985) as a consequence we have to be much more careful about cost of production and returns than most in the Midwest because there is no safety net.
   Take another example, the futures market.  At one time the futures market was a primarily a tool to allow producers and users to hedge prices.  Now the futures market has become a tool of big banks, hedgefunds, HFT's and who knows who else to extract money on a grand scale from the economy.  As such you can't tell anymore if the price signal has any relationship to actual supply & demand so you don't know what to do, plant or not plant.  If you think someone has their finger (and both feet) on the scale you are less inclined to take it seriously.
  For what it's worth. 

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