The United States is having a historically adverse planting season for major field crops and Minnesota is at the core of the problem.

From Pennsylvania to western Nebraska, colder than average temperatures and persistent rains throughout the season have delayed planting of corn, soybeans and small grains such as oats and barley. Some major wheat areas and crops grown in the south, including cotton, have been spared.

For economists, this is an “exogenous shock” to the U.S. economy. These are defined as random events that come from outside the economic system itself. The flu epidemic of 1918-19 that may have killed 50 million was such a shock, as was the 1914 outbreak of World War I, the eruption of Krakatoa in 1883 and the swine flus currently killing tens of millions of hogs in Asia and Europe.

Not all exogenous shocks have equal effects nor are the effects always negative. World War I was a disaster for Europe, but gave a huge boost to the U.S. economy. Many U.S. rivers have now been at flood stage for longer than in 1927, but the relative damage is much less now.

This year’s wet and cold weather will impact farmers and crop-related businesses such as trucking and corn and soy processing. Retail sales in farm areas will be down, particularly of “durable goods” like pickups and farm machinery, but also appliances and other big-ticket items. But it is not likely to have much impact at all on a national economy producing $19 trillion in output each year.

There were three years with very bad crops in recent decades. In 1983, total corn production was down by 49 percent from the average of the preceding four years. In the historic drought of 1988, the drop was 31 percent and in high-rainfall and flood-plagued 1993, 33 percent. For soy, the drops were 25, 20 and 15 percent in those years respectively.

At the average prices and yields of the last four years, 30 percent or 50 percent drops for the 2019 corn crop would be 4.3 billion and 7.2 billion bushels with values of $15 billion and $25 billion respectively. For soy, the same drops in output and value would be 1.2 billion and 2.1 billion bushels worth $14 billion and $19.5 billion. There will also be some production drops for less important crops such as oats, canola or barley of which some is grown in areas with excessive moisture.

To put things in perspective, these declines in the two crops would total 1.4 million of the familiar grain hopper railroad cars for a 30 percent drop and 2.4 million for the 50 percent drop.

These are substantial amounts compared to the $195 billion in cash crop sales for all products. Corn and soy make up nearly half of this. At a worst case scenario of 50 percent drops in both, sales from all farm crops would fall by some 23 percent nationally. But that is only a fourth of one percent of GDP.

Astute readers may question the assumption that the price would be the same as the prior recent years. If you cut supply, price rises. So fewer bushels change hands, but at a higher prices. The amount of physical output will fall, but value of sales won’t shirnk by as much. In the bad crop years cited, prices generally rose from 10 to 22 percent with soy rising 38 percent in response to the 1988 drought.

If the United States were a closed economy for ag products — as it essentially was for decades until the 1972 demise of the Bretton Woods international payments system allowed the U.S. dollar to decline in value, burgeoning U.S. exports — then a short crop year could actually boost the value of farm sales.

For economists, demand for farm crops in “inelastic.” That is, the quantities users are willing to pay for drop by a smaller percentage than the price rises. So total revenue goes up when production is curtailed. Such inelastic demand is the reason why private companies in all sectors want to achieve monopoly power or collude to raise price. Smaller output means more revenue and much more profit.

The same relationship lay behind the “paying farmers not to produce” idea at the heart of U.S. farm programs from 1961 through 1995. We had tried to raise farm prices and farm incomes by having government buy up large quantities of products and store them. This is what the European Union did for decades in its Common Agricultural Policy and Brazil with various coffee “stabilization” schemes. And President Donald Trump has talked about doing it with soybeans.

But these government purchase programs build up huge surpluses that are hard to dispose of without depressing market prices. But if you give peanut butter, turkeys, and butter to school lunch programs as we did in the 1950s and ’60s, hand out cheese to senior citizens as in the 1970s and dump cotton and tobacco on world markets as we did under the “Food for Peace” program for decades, you inevitably start to step on your own toes and depress market prices.

It was the Kennedy administration that decided it would be a lot cheaper to raise prices for crops and income for farmers by paying them to not plant some percentage of acres. The cost to the Treasury was lower and there were no bothersome surpluses moldering in storage. Yes, consumers paid marginally more for food, but most did not realize it and this caused no political problems.

This does not work, however, when the country is open to world markets. The U.S. is by far the world’s largest corn producer, but still has only 37 percent of world production. So a cut here may raise world, and thus U.S. prices, but not by nearly as large a proportion as the decline in output here. So the value of sales drops.

We have a higher proportion of the world’s soy market, but remember that soy is an oilseed that must compete in the market with oils from flax, canola, sunflowers and oil palms. So soy is little better off. Again, price increases from a poor U.S. soy crop won’t come near to offsetting output drops.

With Trump’s recent tariff war, the public is now well aware of how important sales of U.S. soybeans to China are. The market for corn is different. Our two biggest export customers are Mexico and Japan, not China. Each has bought about 12 million metric tons per year. Compared to U.S. production of over 360 million tons in recent years, this is not huge, but still important.

Overall, the hit to output will not be offset by price rises the way it might have been in the 1960s.

Note two other things: First of all, GDP fluctuates not just from values of physical bushels of corn, soy and other crops. Truckers will get fewer loads, hopper railroad cars will sit on sidings, elevators will handle fewer bushels, and less LP gas will be used for corn drying. Farmers will buy fewer new machines and implement companies will hire fewer hours of labor. So the decline in national output will be greater overall.

Second, hits to the profits of farmers, grain handlers and processors will be substantially higher than the percentage decline in volume produced and handled. For all of these, total costs will not drop much even if volume does because a large proportion of their costs are fixed ones that do not vary with output.

Yes, farmers will have to haul less crop in from the field. They will spend less drying corn. But the seed, fertilizer, rent or mortgage payment, the diesel and time in tilling and planting and the amortization of hundreds of thousands of dollars invested in machinery and handling facilities will all have to be paid regardless.

Ditto for railroads and barge companies. They will save some diesel, but other costs will not change. The owners of railcars and barges will have to pay interest on these even if parked on sidings or tied to river banks for months on end. Ditto for elevators. Ditto for John Deere, Case-IH and myriad manufacturers of specialized implements like Wil-Rich.

Minnesota is one of the largest producing states for both corn and soy. Farming is a larger proportion of state GDP than in most other states. So the hit will be bigger here.

Then there are the complications of the Renewable Fuels Mandate, the market share of high-fructose corn sweetener, and the complicated and often conflicting incentives in U.S. crop subsidy programs. And there are the considerations of how a bad crop will intersect with President Trump’s trade wars with some of our biggest customers. But examinations of these will all have to wait for future columns. Related Articles Real World Economics: Presidents have much less power over economy than people think

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St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.