Bloomberg: The Challenge of Feeding 9 Billion People

May 30, 2013

Greg Page, May 29- America’s breadbasket, on the heels of last year’s severe drought, abounds with predictions of record corn and soybean harvests. The juxtaposition of the hope for this growing season against the reality of last year should give us reason to consider the lessons learned in 2012.

With grain stocks low, farmers have responded to higher prices and planted more. Although rising commodity prices are often viewed only as harbingers of inflation, they also motivate farmers to produce more. “The cure for high prices,” as the commodities-market adage goes, “is high prices.”

In late March, the U.S. Agriculture Department predicted farmers would plant the most corn since 1936 — about 97 million acres — and 77 million acres with soybeans, although estimates may fall because of the slow pace of spring planting. All that acreage is predicted to deliver a record 14 billion bushels of corn and a near-record of more than 3 billion bushels of soybeans. The forecasts are predicated on a return to normal yields and moderate weather during the growing season.

We have been here before. Last year, from January through the first week of June, the price of the most important food crops fell 20 percent in anticipation of bountiful harvests. Then the rains stopped. By August, corn and soybean prices in the U.S. reached record highs in anticipation of what proved to be the smallest corn and soybean harvests in six and nine years, respectively.