Relying on exceptions, proves the rule
Bloomberg has a report on the dismal state of American meat production. Amidst all the cattle futures, pork bellies, and “troublesome beef” jargon is news that prices are soaring on virtually all domestic meat products, and its largely because of high corn prices. If you aren’t already familiar with our corn-based economy then order Michael Pollan’s classic ASAP. If you are, then you know that the tremendous bulk of animal feed is corn-based, as are countless (literally countless) other food and cellulose products. Unfortunately, this reliance is undermined by the unwavering growth commitment propelling forward our agriculture industry. From the FT:
It’s not every day that an official forecast for one of the biggest corn harvests in history sends traders scrambling to secure supplies. But that is what is unfolding in the world’s commodities markets.
Late last week, the US government’s crop forecast propelled the price of corn in Chicago sharply higher for a second day in a row. Monday’s powerful rally marked the biggest daily rise in prices since 1973 and sparked fears of a repeat of the food crisis which occurred in 2007-08.
What’s the problem you ask? The continuing rise in demand for corn-fed meat, ethanol, and other corn products is so high, and we are already so close to the limit of current production quantities, that to break even we need a record harvest every year. This year’s bountiful harvest just isn’t enough:
Abdolreza Abbassian, senior grain economist at the UN Food and Agriculture Organisation in Rome, says that “anything other than a record crop” is now a problem because of the need to meet rising food, livestock and ethanol fuel demand.
“We need a record crop every year. If not, we are in trouble,” he says.
This is terrifying stuff. It feels like someone pulled back a corner of the rug we’re standing on to reveal a massive void underneath, a glimpse into the vacant foundations we’ve built our lives upon. Recent Monsanto attempts to improve production have failed, and its a fair question to ask if the great strides made over recent decades in boosting production per acre aren’t reaching their practical limits. Ultimately, of course, there are always diminishing returns. We can only squeeze so much from an acre; there are only so many acres. And yet even this doesn’t begin to take into account external factors, from blights to droughts to climate change, that every economy should have built in buffers to protect against. But we have no buffers in our agricultural system. We are playing on the margins and betting on a future where boundaries expand infinitely. This strategy might bite us in the ass in the short term; it certainly will in the long.