Is Big Better?

By Rick Purnell

Illinois soybean producers are good at what they do. But the right combination of elements will be needed to keep U.S. production competitive and profitably efficient on the global scale. Four economists share varied perspectives on what that might look like in a perfect world.

Shifting Shares from Current Competitors

While Argentina, Brazil and the U.S. make up 75-80 percent of world soybean production, how that total percentage is allocated could change over time, says Michael Langemeier, agricultural economics professor at Purdue University.

“Brazil has the most opportunity to expand supply,” he says. “This won’t necessarily be accomplished with increased yields because their yields are similar to U.S. yields. They could quickly expand acreage, however, and we should be concerned. Any time you have a major supplier that is in a good situation to expand acreage, it is important to realize that once in production, it takes a pretty big shock to get those additional acres out of production.

“In the short term, increasing soybean supply would have a negative impact on world prices,” Langemeier adds. “But, as the world economy continues to grow, there is room for all three players because we’re looking at an expanding market overall.”

New Competitors into the Marketplace

He’s right that the market is growing, asserts Mark Ash, an agricultural economist with USDA’s Economic Research Service (ERS). He notes a dramatic, relatively recent increase in exports to Bangladesh, Pakistan and Sri Lanka. And, while the U.S. hasn’t sold many soybeans to India, Ash says it has potential to be a large market for U.S. soybeans in the future.

Of course, competition can increase, too.

“Newer competition for U.S. soybean producers is starting to come from Ukraine and the surrounding region,” Ash says. “This has developed over the last decade. They’ll likely be exporters that ship into parts of the Northern Hemisphere and could compete with our trade. Canada has increased its production, too.”

Slowdown in U.S. Farm Size Growth

The evolution in farm size, operational and personnel structures will continue with little abatement in sight. But Jim MacDonald, chief of ERS’ Structure, Technology and Productivity branch, expects from the 2017 Census of Agriculture that will be released this month an indication that growth in farm size has slowed since the shift of crop production from smaller farms to larger farms that largely occurred from 1982 to 2007.

“Technology has been the primary driver of this shift and it means a farmer or family farm manager can manage a lot more acres than was possible 30 or so years ago,” MacDonald says. “Equipment is bigger and faster, so you can cover more ground. Herbicide-tolerant soybeans and corn reduce the amount of time that’s needed for weed management on a per-acre basis.

“Looking to the future, I think the big question is going to be the impact of precision agriculture on farm size and that’s hard to predict,” he adds. “If it works out like other technologies have and allows farmers to cover more acreage in less time, we’ll likely see people use it to manage bigger farms. However, some predict precision ag may favor smaller operations so there is uncertainty.”

MacDonald notes that during the last 20 years, price signals moved a lot of acres into corn and soybeans. While some farms continued to grow in size, he believes U.S. soybean producers may have found optimum operating efficiencies that support current market conditions.

“By contrast, if you look at the hog business in the 1990s and early 2000s or dairy in the last couple of decades, there was a dramatic shift to much larger farms,” he says. “The indication was that large farms were more efficient and that by shifting production to them, overall production costs would go down. I don’t see the same sort of powerful forces in field crops.”

Fresh Opportunity as Industry Matures

The rate of farm size change may have slowed, but market conditions will likely continue to push toward larger farms, argues Craig Dobbins, professor of agricultural economics at Purdue University. He notes grain buyers, especially in specialty crops, seem to prefer fewer suppliers.

“If you look at other industries as they grow, opportunities arise around the edges for things that large-scale producers don’t want to do because they don’t have the time or interest,” Dobbins says. “The mid-sized farm segment may get lonely, but I don’t see this trend stopping.

“Take Walmart Super Centers as one example. Around them are businesses that like to be near Walmart because of the traffic the stores generate. Granted, some opportunities go away when one of these stores is built,” he adds. “This is disruptive, but over time, people figure out how to take advantage of having that store in the area. The same is true of farming.”

Dobbins says that as farms grow, multiple managers will be involved, but the businesses will still have strong family connections. And, while technology will always be important, someone has to think about the human resources aspect more than has been done in the past.

“It is going to take a team of people to make sure things are getting done well in a timely fashion,” he says. “However, we can learn from other industries because they’ve already learned a lot of this. Learning in the future will involve thinking more broadly. We can look at existing business to find out what they do to attract high quality people and what kind of educational programs they put together for employees. We can then put this to work in farming businesses.

“There are management consultants today who can help us start thinking more strategically,” he adds. “We should really take the idea of lifelong learning more seriously than we do now. Perhaps the leaders of farm businesses should consider taking sabbaticals periodically and go learn something new, then come back and implement it on the farm.”

Amid the discussions, there is strong agreement that change, whether fast or slow, personal or technological, is a consistent element for soybean producers. How change is managed on individual farms and as an industry is key to meeting domestic and international customer needs.