Most economists will grudgingly admit there is a business cycle. Their hesitancy is because cycles have a deterministic nature, which confuses analysis of what is going on in the here and now. In other words when cycles are involved people tend to project the cycle forward and their projections then influence what they think they are seeing in the present.
Large scale agricultural cycles are tied to commodity prices and investment houses eagerly seek all kinds of statistical correlations between commodity prices and whatever else they can find that appears to reliably move in cycles. With big data it’s become easy to find these correlations, as long as you have access to computers, mathematicians and programmers. Some commodity trading units do well at investing on the basis of cyclical correlations; but there’s a bigger picture involved with agricultural cycles.
When food is in very short supply it changes the way people behave. Historically, before industrial development, when food supplies dwindled for more than one crop cycle, there was a long term impact on society. As nutrition levels declined, fertility rates declined. The cycle of generations that tied agricultural societies together got holes in them when there were years with far fewer babies than usual.
This same combination of agricultural downturn and population decline is still a part of global society. When there are protracted food shortages, there are still fertility declines. Fertility issues are often overlooked because in areas with food shortages there are also usually wars and disease –which grab much more attention. Furthermore, in our over populated world, population growth is not an essential need, so fertility doesn’t seem as significant as it once did.
The economic and social links that tie global food and commodity markets together are complex. But for decades subsidized crops in wealthy countries have driven down the prices of crops in markets all around the world. The affect of crop subsidies in the United States and Europe have caused hardship in African and Asian countries that rely on agriculture. There’s a long intense debate about how to handle this problem, which always seems to run into strategic food considerations. Wealthy countries are reluctant to lose control of commodity markets for fear of losing strategic control of their own food supplies. Military brass don’t ever want to lose control of food supplies.
Finally, in the United States, there are regular long cycles of land value run ups followed by decline. The Federal Reserve Bank of Kansas City Economic Review (fourth quarter 2011) offers a clear presentation of how this works in an article titled, “Agriculture’s Boom-Bust Cycles: Is This Time Different?” Essentially, when crop prices escalate and profits increase (good times and cyclical upswing) the booming profits spur dramatic increases in farmland prices—in the range of 100 to 300 percent over five to ten years. Here’s how the opening paragraph of the Fed’s paper describes it.
“U.S. agriculture is notorious for its boom and bust cycles. During the past 100 years, shifts in U.S. agricultural export activity triggered fluctuations in agricultural profits. Soaring wartime food demand during the 1910s and 1940s boosted U.S. agricultural exports and farm prosperity. A spike in U.S. agricultural exports during the 1970s sparked another surge in U.S. farm incomes. At the same time, low interest rates quickly translated rising incomes into booming farmland values, especially during the 1910s and 1970s when farmers used debt to finance their investments. These golden eras of a booming farm economy, however, quickly faded as economic and financial market conditions changed.”
According to the Global Association of Risk Professionals (GARP), “So far in the 21st century, Midwest crop producers have enjoyed relatively good times, with several years of exceptional profitability. These increases are driven primarily by four factors: strong domestic and global demand for U.S.-produced commodities, supply constraints due to adverse growing conditions, historically low interest rates and very strong net income from cropping enterprises.” The question is, where is this leading now?
Enter Big Data
The new feature of this debate is big data. For better and worse, immense amounts of agricultural data are now available, mostly from U.S. government sites or United Nations sites. The information is often extremely well organized and well presented. Agricultural cycles now operate with fine tuning, simply because statistical information is accurate and timely about planting, weather and crop growth. Sensors and data can now change the timing of commodity markets and crop planning.
The social lag that used to accompany agricultural cycles long ago when fertility declined is dependably managed by accurate information in the United States. Elsewhere where commodity and food markets are influenced by US crop subsidies the connections become more complex. Industrialism, global shipping, and agricultural technology now all combine to change the way agricultural ups and downs affect any particular local society. What is now occurring is digital cycles, industrial cycles and agricultural cycles all interacting in new ways. The exact interactions are not well known because big data is so new.
To get an idea just how detailed US government commodity sites are you can take a look at the maps and data presented by the National Agricultural Statistics Service.
Click on any of the commodities listed on this page and you will next come to a map showing every county in the US that produces the named commodity. But that’s not all the information available. Other maps show the “Planted Acreage by County,” the “Harvested Acreage by County,” the “Yield per Harvested Acre by County,” and the “production Acreage by County.” It’s impressive. Here’s what one of the national maps looks like as it presents all the US counties planted in barley. (see map below)
Follow The Data Trail
A non-government group called EWG, which stands for Environmental Working Group offers big data about US Farm Subsidies, which is also organized on maps. This time the maps are organized by state rather than county. Once you click on any particular state you are brought to an information page that looks like this.
If you click on any of the singly listed commodities at the bottom of the information page you are brought to details about subsidies for that particular commodity in that particular state. You can track US crop subsidies against the previous production by county maps to get an idea which states are the big producers of any particular commodity then look at the subsidy information to see how much subsidization is involved. By following the money you get a rough idea how state agricultural politics are managed at the national level.
Finally, if you want to know who may be affected by US subsidies, or at least which markets in which countries are involved with the same commodities, you can look at yet another site, this one offered by the United Nations. If you click on “Production” in the top navigation you come to a page that lists top production commodities.
Then if you click on any of the commodities listed at the bottom of the page you are brought to a specific page about that particular commodity and the countries that produce the commodity.
Big data is now available on enough levels that it’s fairly simple to trace some of the social interactions that happen as a result of agricultural policies. The data isn’t available for all countries with the detail it’s now available in the US, but you can begin to get a look at how commodity management is likely to interact with other parts of the world. The agricultural cycle of food and nutrition still has meaning, and some of the statistical support for analysis of how food shortages affect nutrition are available, although at this point you also have to research social and political news for more specific knowledge of what outcomes occur as a result of commodity production decisions.
It sounds complicated, but because of big data, if you follow commodities you can easily get an accurate view of how agricultural cycles have impact markets and people around the globe.