Letter from Langdon: Mega-Mergers Signal Lean Years Ahead

After some good years, the squeeze is on for American farmers, who will see rising costs thanks to mergers of industry giants like Dupont and Dow. Even if the cattle are fat, farmers are going to be getting skinnier.

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Farmers in a broad area from the Rocky Mountains to the Appalachians, known among other names as America’s Breadbasket, have had several good years. The price of grains, oil seeds, and beef created profits. Now, collapsing prices for things like corn, soybeans, and cattle are amounting to a breakeven situation, or worse.

The squeeze is on.

That’s what happens every time farmers earn profits above bare subsistence. Our suppliers of seeds, pesticides, machinery, and all the other things we use to make a living aren’t blind. When our margins expand, theirs do too.

It’s their chance to share the wealth.

The same thing happened in Egypt once, when Pharaoh had dreams about fat cows and plump heads of grain followed later by thin ugly cows and shriveled crops. Only one person, a guy named Joseph, knew that the dream meant Egypt would have seven years of bounty followed by seven years of famine.

His ability to interpret Pharaoh’s dreams got Joseph a leg up in life and helped head off mass starvation. Too bad he doesn’t work for the U.S. government today.

We modern farmers have had our fat years when prices for things we sell rose faster than the cost of all the things we buy. Now we’re headed for lean years as selling prices have lost close to 40% but all the corporate goods we buy are still right up there. Most farmers think like Joseph and put something back for those years when times get tough. The problem is that farmer’s costs usually equal a sizable percentage of total income.

Without adequate competition enforcement, costs can take the lion’s share, and the lion wants it all.

So while Joseph, son of Israel, came to be governor of Egypt second only to Pharaoh himself, we do things a little differently in the United States of America, where Pharaoh, Inc. rules the roost.

In America these days, we put corporations in charge, and the corporate answer to everything is growth. One way they achieve that growth is about the same way big fish get bigger – by eating little fish.

When finding little fish to eat gets tough to do, big fish get “married” for about the same reason people do, because two can live cheaply as one. That is if you don’t count competitive pricing, shareholder value, big bank fees, executive bonuses, and golden parachutes paid to upper level management.

That’s the way it is for two giant corporations known as Dow and DuPont, which plan to join their substantial businesses into one. Part of those businesses provides farmers in the breadbasket with patented seeds and pesticides.

Seven Fat and Seven Lean Years_TIF

Early estimates are that the combined companies will have 40% of the total market.

That’s big. But our government regulators only see the 60% they don’t have.

To be fair the corporations involved say it’s all good. More efficient, better positioned in the market, improved availability of their products to a diverse customer base, all should be enhanced. I don’t remember ever hearing a farmer say he wished he could buy more corporate stuff, but those who think that way should be quite pleased.

On the other hand, two adversaries, each of which held down retail pricing by competing, are about to become as one, reducing overall competition by close to 20%. That’s down to a total of five companies. Together, for a while at least, they will be one of the largest chemical brewers and plant breeders in America.

But that may not be for long, because once the two companies join, the master plan is to split the whole thing into three new companies.

Bankers, some of the biggest fish in the sea, should make a killing on fees. But some analysts think research into new products — a must for agriculture in search of new hybrids and plant varieties as weeds and insects become resistant to current pesticide products — could suffer if the new companies lack sufficient capital. It seems doubtful much cash would accompany the spin offs. As a result, any new company serving agriculture might become another takeover target for smaller companies like Monsanto, which only recently dumped ideas about mega-merging with Switzerland-based Syngenta.

Monsanto already controls as much as 80 to 90% of some U.S. seed markets.

Farmers have seen the handwriting on the brick wall of monopoly. Competition in livestock markets, fertilizer, seed, and petro chemicals has been declining for years. That trend will continue as farm profit margins sink into a shark infested sea of red ink. Hopes that the new Obama administration would make competition in ag markets a priority were dashed when administration officials who oversaw multiple hearings into competition issues quietly left their government posts to be replaced by people more acquainted with corporate ways and the status quo.

The way it looks now with low-priced commodities and lofty input prices, even if grain fields remain productive and cows are plump, farmers will definitely be getting skinnier.

Our seven years of famine have begun.

Richard Oswald, president the Missouri Farmers Union, is a fifth-generation farmer from Langdon, Missouri. “Letter From Langdon” is a regular feature of The Daily Yonder.

 

Topics: Ag and Trade
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