History does repeat itself, especially in agricultural cycles. Rabobank put together a report on how farmers adjust input spending when commodity prices drop. It explores the responsiveness of input volume and price to farm profitability in America, forming a view of how the current downturn will impact the input marketplace through next year.
For example, the report says farm machinery is a hard asset that can be maintained, and new purchases can be deferred as needed. That makes machinery the most income-elastic of the major farm input categories. Fertilizer prices are also elastic. Lower fertilizer prices typically shoulder the bulk of changes in expenditures, but farmers can also adjust those volumes as well. Seed spending has increased markedly during the past 20 years as corn revenues increased during the early 2000s. As some seed patents expired, seed production costs are now expected to dictate price, suggesting farmers may see relief ahead.
