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EC SoDak | It’s the fundamentals Of what happens when you artificially manipulate a market that is important. While yes, they are still making money, they aren’t making near as much of it, that is why they wanted to cut production, to increase profit margins to acceptable levels (sound familar to some on this thread). So what happened? They went from pretty much complete control of a market to now encouraging large competitors to ramp up production, increasing investments & research, and lowering their COP to a level where they can compete. They lost a lot of weight with that supply move.
Now look at the US farmer, while weather and ethanol policy dictated the short supply, it ramped up a lot of acres in the fringe parts of the corn belt and all across the world. Now we have lost a lot of weight with the export market. It encouraged, for instance, South America to slash and burn forest to grow crops, invest in infrastructure, etc. once this ball gets rolling, it’s hard to stop as their learning curve for ag technology is less since we already went through the pains and costs of advancing growing grains. So, they have cheaper land, input costs, access to amazing technology, and they will more likely raise their bu/ac quicker than us, so their COP will likely decrease quickly also, making it even more difficult for the American farmer.
So, if supply manipulation only encourages your competitors to increase production so you lose market share, what can we do? We have to become a lower cost producer with lower global prices to discourage their production. How do you do that? Odds are controlled costs and more bushels. This has been going on for decades in the ag industry whether you’ve recognized it or not, it’s really nothing new, you just have to figure out how to stay competitive in the short term. We’ve done this by being a relatively stable producer with lower COP. Because of the run up a few years ago, we lost that edge by bloated costs. It’s now our job to lower the COP via more bushels, cheaper inputs, lowering rent, etc. the market will control this, it just takes time.
Edited by SoDak Farms 10/4/2017 11:25
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