All Signs Point to Higher Food Costs

By ART CULLEN

Food, fuel and housing costs are the hardest drivers of the worst inflation spike in 40 years. It’s hard to see food prices doing anything but increasing from this vantage point in time.

Drought is gripping the Americas. War rages between Russia and Ukraine, major wheat and oilseed producers. Fertilizer went outta sight — and isolated Russia is a leading producer. World population continues to grow.

It would appear the smart money is laying down its bets on prime Iowa farm ground. Last week, an Art Dahl farm near Peterson sold for $20,000 per acre, a record. Private equity money is buying land all over Iowa, including Pocahontas County. It’s increasing pressure as people who study these things see Iowa as a sweet spot in an increasingly volatile food economy.

Farmers who laid in cash from the Trump trade subsidies, and the previous expansion of biofuels, are standing up and bidding with the equity funds. Debt fueled the price run-up before the Farm Crisis. Cash appears to be fueling this red-hot land market. The agland market does not appear to be suffering from fear of rising rates.

Rising interest rates this year should cool down housing prices. The pandemic choked new construction by snarling construction supplies. Bids for public projects are coming in a third higher than planned. Developers are hesitant to remodel office space into housing in rural Iowa for the remodeling costs. Storm Lake was painfully short of housing long before the pandemic. That’s because wages couldn’t support new construction.

But rising wages at Tyson have built actual demand. Hundreds of new units are under construction, yet Storm Lake needs hundreds more urgently. The children of baby boomers are having babies. They need housing. Materials prices are likely to be stubborn against rising interest rates.

Energy prices are starting to subside but not in time for the midterm elections. The Biden Administration pledged to increase corn ethanol consumption for cheaper fuel at the pump. Burning more corn is unlikely to help bring about lower food costs.

Drought has set in for the long term. A warming climate is making corn production impossible in some parts of Kansas. Grain, dairy and livestock production are moving to the Upper Midwest as conditions become untenable south of Dodge City and west of the Rockies. The Dakotas are parched. It’s not going away, the scientists say.

Soil is being depleted. Wheat production is declining in China every year because of soil degradation.

Avian flu just knocked out 5 million laying hens at Rembrandt. Egg prices are up. You can still feed the clan chicken hind quarters for 66¢ per pound, but it wasn’t so long ago they were 50¢. Again, the scientists warn that there are all sorts of nasty livestock diseases waiting to spring on us while we look the other way. If African swine flu hits Northwest Iowa, watch out.

The Federal Reserve and the Treasury can control prices to a degree. Everyone thought the sky was the limit when soybeans were selling for $12 per bushel in the late 1970s. Interest rates of 22% cured that, and put Iowa on its knees for decades. When land prices crashed, we all crashed with them. We did not think that prices could fall. Did they ever.

This time feels different.

No less than Norman Borlaug, the father of the Green Revolution, cautioned that yield improvements delivered through petrochemicals, plant breeding and irrigation would last only a generation or two, and population growth would overwhelm us. He was right.

We will have less land in grain production because of climate change, and it will be less productive from the exhaustion of soil mining. The land will be held in fewer and stronger hands. It will be more difficult, absent a breakthrough like lab-grown meat, to deliver protein to evermore hungry people. The pandemic was a trigger that might have vaulted us into a different food cost regime. The fundamentals, as they say, point to long-term increasing food costs for the world. Enjoy those 66¢ hind quarters while you can.

Art Cullen is the publisher and editor of The Storm Lake Times Pilot. He won the the Pulitzer Prize for Editorial Writing in 2017 and is the author of the book “Storm Lake: A Chronicle of Change, Resilience, and Hope from a Heartland Newspaper.” Cullen can be reached at times@stormlake.com.

From The Progressive Populist, May 15, 2022

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