Representational image.

It was a miscalculation. American farmers held back from selling corn last summer because they expected prices to go up as the rains failed and corn production fell. And it was expected that the dry spell would continue. It did not.

There was plentiful rain, a bumper crop, and the resulting glut led to a fall in corn prices. The farmers who had let the corn be in silos instead of selling them are ruing their decision not to sell then. Agricultural prices fall into the boom-bust cycle like in manufacturing. But there is no permanent loss.

The price mechanism of food grains and cash crops follows the same pattern of rise in prices due to shortfall in production, and steep fall in prices due to rich harvests. Right now American farmers, including the corn farmers in Brazil, are experiencing the glut effect.

The domestic consumption of corn in America is limited, but it is the exports that boost the price levels. The export market becomes competitive for farmers in the United States if there is a good harvest in countries like Brazil. Both countries thrive on exports more than domestic consumption. The world corn prices have touched the lowest level since November 2020, according to market watchers. As the American farmers have not sold the corn hoping to get a higher price it has now forced them to sow less acreage and putting off buying sophisticated farm machinery because of diminished capital. Future prices of corn that were reckoned at $6.30 a bushel in June have fallen to $4.10 a bushel because of good harvest.

American farmers had stored 7.83 billion bushels of corn in the storage facilities on their farms, 16 per cent higher than the nine-year low of December 2022. Even after using up the leftover corn to feed livestock and use as biofuels, the remainder of the corn will remain at a five-year high in September. This poses a problem of its own, and following the market trend, the overproduction leads to destruction. This is ironical because the capitalist pattern of high prices followed by low prices ignores the millions of people who go to bed hungry in large parts of the world.

Dan Henebry, the Illinois farmer, who regrets not selling the corn last summer says that he is still left with 40 per cent of his 2023 harvest storage, which includes 30,000 bushels on his farm, and another 30,000 bushels in the grain elevator, paying three to four cents a bushel per month as rent for public storage. Before the prices nosedived, Henebry sold some corn at $5.50 to $5.70 per bushel, and even managed to sell at a high of $6.21 per bushel for corn stored in the grain elevator.

The price fluctuations are natural in the market, but farmers are caught on the wrong foot as it were when they fail to sell it at the right time. Fred Huddleston would have earned $360,000 if he had sold his stock after Easter in April, $382,000 around Father’s Day in June, and $307,000 around Halloween in November. Interestingly, the breakeven prices for corn farmers is $5.27 per bushel, according to an Illinois University estimate. That does not leave much in terms of profit to the farmer.

It is for this reason that governments all over the world, the developed and the developing countries, have to provide subsidies for the farmers. Agricultural subsidy is a hotly contested issue in the World Trade Organisation (WTO) deliberations over the years. Developed countries like the United States which had an agricultural surplus for exports opposed the protected agricultural markets in developing countries.