The adage is that real estate is a great investment because they are not making any more land.
Land limitation is also an increasingly important aspect of grain markets.
Many analysts say today’s record high wheat prices will coax Northern Hemisphere farmers to seed record area to winter wheat this fall, which could extinguish the blazing wheat price rally that sparked to life a few weeks ago.
This is likely true, although wheat prices will likely remain exceptionally strong at least until next summer.
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But if more land is seeded to wheat, that means less will go into competing crops that are also in short supply and so it would support the price of those commodities.
Without a large reserve of unused land to rapidly bring into production, any increase in acreage to boost the supply of one crop will lead to shortages of another. This spring, we saw U.S. corn area increase by 15 million acres, with most of that coming from a 10 million acre decrease in soybean area.
That cooled corn prices, but now soybean prices are rising.
We’ll be robbing Peter to pay Paul for several years while farmers crank up production.
While new land is not being created, pastures and forests are being converted to cropland in Brazil, but the transformation will take years to have an impact.
I expect pressure will increase in the United States and European Union this winter to take land out of their conservation reserves to increase production there and lessen food price inflation.
But these measures will likely increase crop area only modestly, viewed from a global context.
Acreage increases will be complemented by increased use of fertilizer and other inputs to boost yield.
New, higher yielding crop varieties will be introduced and slowly but surely, production will likely catch up to demand.
But until it does, crop farmers should enjoy a rare period of prosperity.
