In the United States, over 270 million metric tons of corn are produced each year. No other crop can hold a candle to the sheer production size of corn. With such a significant amount of land dedicated to the production of this crop, it has become a staple of many diets, both people and animals, around the world. Its many uses (from food to fuel) has made corn an essential piece of the modern agricultural landscape.
The Swiss Army Knife of Crops
Not only is corn used to feed people around the world, but it is primarily relied on by farmers to feed their livestock. Cattle, chicken and hogs all consume significant amounts of the crop before they are sent to slaughter, and corn plays a major role in the health of those commodities as well. Should there be a corn shortage, it could lead to a dip in the supply of meat and other industries due to America’s reliance on corn. While on a smaller scale, corn is also used for alcohol, corn syrup and even in the creation of some plastics. Another product of corn is ethanol, and over 30% of production is allocated to ethanol. This means the price of crude oil and gasoline may share a similar correlation depending on the current economic climate. Corn is a very important crop to the world, but is its wide-spread popularity and uses the best practice?
It’s no doubt that corn provides many benefits to the modern world. However, the sheer amount of resources it takes (land, water and fertilizers) to produce corn on this scale may outweigh the benefits corn provides. The corn belt dominates almost as much land as the entire state of California, and is continuously expanding. Over 1 million acres of grassland and prairie were replaced with corn during a stretch of time between 2003 and 2011, compounding an already massive industry. The interrupted land that is now dominated by corn threatens established waterways, wetlands and wildlife.
The mass amount of water and fertilizer needed to supplement such a monstrous amount of corn is immense, and it is depleting water tables in the midwest faster than they can replenish from rainfall. The high amount of nitrogen in the fertilizers is also running off into rivers and streams, which eventually ends up in the Gulf of Mexico. This leak into the Gulf of Mexico is partially responsible for the creation of what scientists call “the dead zone.” This dead zone has such low levels of oxygen that it has become uninhabitable to the creatures that once thrived there.
Combining the cost of land, water and fertilizer, are the benefits corn provides outweighed by the depletion of natural resources? Perhaps, but there are new innovations that could make the current system more efficient. Many advances in technology have lead to less wasteful irrigation practices, more effective ways to fertilize crops and other beneficial environmental farming practices. These stronger methods can lead to larger yields, and a more diversified agricultural landscape.
A Corn Crash
A commonly heard phrase in the investing world is to diversify your portfolio to reduce risk. Well, the same thought process should be carried to farming. Placing so many eggs in one basket is a short-term idea with some serious potential consequences. The practice of monoculture corn farming leaves many systems vulnerable to a crash. As history has shown, it repeats itself, and monoculture farming has proven repeatedly to fail. The lack of diversification places the American economy in a vulnerable position. Since we rely on corn for so many different applications, the collapse of corn production would likely leak into several different, large industries. It’s fall could see increases in the price of food, livestock feed and energy, as well as a bailout for the farming industry.
While corn is a versatile product used in many different products, it may come with an environmental cost and it may soon impact the American economy, with potential ripples in the global market. Corn is a huge industry, and is a pillar in the American agricultural landscape. When considering investing in corn, or other futures contracts, working with a professional financial advisor is critical to minimizing risk.