Gerard, I was going to agree with you. Your arguments make apparent, intuitive sense.
However, then I thought that maybe there was actually some basis for Stefan's assertions, counter-intuitive as they seem.
Perhaps you might like to check the following, which do tend to support the notion of record high food prices:
http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/
http://www.rba.gov.au/publications/bulletin/2011/mar/3.html
http://finance.ninemsn.com.au/newsbusiness/motley/8525318/global-food-prices-jump-10
http://www.abc.net.au/lateline/content/2012/s3565592.htm

Craig, Gerard, this may help.

At 2004 prices, that is, in 2004 dollars, wheat values in Australia have been declining since 1914. The extent of that decline is evident from the Australian Bureau of Statistics (Australian Year Book 2006) records.

In 1914, in 2004 dollars, wheat was $600 per tonne. In 1924 it was over $500 per tonne. Ten years later in 1934 it was still around the $500 per tonne mark. At the height of the Great Depression—from the records this appears to have been 1929, again at 2004 values, the price of wheat was $300 per tonne. The forecast for 2012/13 is around $330/tonne. Add in inflation and cost increases since 2004 and wheat prices at best are stable, in my view continue to decline in real terms.

In 1964, during the decade when we were clearing and could afford to clear one million acres of new land a year the price varied between $500 a tonne to a peak in 1974 of $600 a tonne. Since that time—for the last thirty years—wheat values have declined to where they are today at around $300 per tonne. The long-term trend line is down.

During the same period from 1914 to 2004, wheat yields have trended upwards. From the ABS graph, the seasonal spikes, the difference from year to year, are dramatic. What is evident is that there has been a greater variability, as one would expect, in yield year to year than in value year to year. Between 1914 and 1924 yields were between 750 kg/ha and one tonne.

Over the next twenty years there was little change with a slight trend upwards. From the late 1950s to the present day there has been the period of real yield growth—from an average of a bit over 1 tonne/ha to close to 2 tonnes/ha. Again the seasonal variations are dramatic—in 2002 two tonnes per hectare—2003 one tonne per hectare—2004 two tonnes per hectare. It should be noted that in 2005 the five-year average was just 1.77 tonnes/ha.

So, over the last forty or so years, that is during the wheat growing lifetime of most of us, yields per hectare have doubled but returns, in 2004 dollars, have declined to less than half of what they were at the beginning of the period.

During the same period the area that we have planted has doubled from five to six million hectares to around twelve million hectares although there have been some major variations during that time. The peak was in 1983 when thirteen million hectares was planted. Probably due to the wool boom, wheat plantings fell between 1983 and 1993 to a low of about eight million hectares.

The national wheat harvest has more than doubled since 1964—seasonal variations are stark and demonstrate the fragility of growing wheat in Australia—none more so than recently—in 2002 the harvest was well above 20 million tonnes only to plunge to 10 million tonnes the following year from just about the same area only to exceed 20 million tonnes the next year.

In summary over the last forty years wheat yield per hectare has doubled—the area planted has doubled and the value of the wheat grown—the price received by growers—is about half of what it was in 1964.

‘If we are to avoid mass starvation we must increase yields by 50% in the next twenty years.’
Dr Norman Borlaug Nobel Peace Prize Winner.

In August 2006, Dr Norman Borlaug—Nobel Peace Prize winner—father of the green revolution issued a chilling challenge to the world wheat industry. Dr Borlaug is the scientist who in the 1960s and 1970s, led the team that brought to the world high input, high yielding semi-dwarf wheats that increased world production by over 170% in forty years and as a result enabled the world to largely avert the predictions that were being made at that time of mass starvation.

Dr Borlaug told a symposium in Mexico, that world wheat production will have to increase by a further 50% over the next twenty years if the world is to again avoid mass starvation. Presumably because we aren’t making any more fertile land—because global urban sprawl is devouring vast areas that once grew food—desertification is crawling across Africa—salt is ever encroaching on Australia’s wheat lands—Dr Borlaug predicted that 80% of that increase would have to come off land that is already growing wheat.

He also issued his challenge to the world wheat industry before the massive increases in fuel and fertilizer prices over the last five years.

Australian Rural debt over time.

Can we afford to increase production?

Over the last forty years wheat yield per hectare has doubled—the area planted has doubled and the value of the wheat grown—the price received by growers, per tonne—is about half of what it was in 1964.

The rural debt during the same period, from 1965 to 2011 has increased from $M1290 to an astounding $62243. (RBA) So what can we conclude from that?

My interpretation is that our proud claim that we are the most efficient farmers in the world is not true. Australian farmers certainly have not received government subsidies, but to remain competitive in the world markets, they have subsidised themselves by borrowing more and more. Maybe they have been the most efficient borrowers in the world?

Is this the reason why we borrow more and more?

Covering the years 2001-2002 to 2003-2004 the Australian Bureau of Agricultural and Resource Economics (ABARE) surveyed 118 grain farmers from all regions in WA and averaged the results of those years. So they covered good and bad years.

Across the grain belt the top 25% of grain growers had a farm business profit of $258125. The average was $42907. The bottom 25% made a loss of $158000.

What ABARE call the central region performed the best. The top 25% had a farm business profit $284273. The average was $70912. The bottom 25% again, were negative to the tune of $130000.

It’s a close call between the eastern region and the northern region as to who suffered the most pain, the eastern region probably have the dubious honour—you will see why.

In the eastern region the top 25% had a farm business profit of $63254. The average was minus $70097. The bottom 25% was minus $224100.

The northern region fared a little better. The top 25% had a farm business profit of $329030. The average was just $8278 positive and the bottom 25% was negative to the tune of $231724.

The sample for all of WA was small, just 118 farm businesses out of 5335, so just 2.2%—so the above can only and should only be taken as indicative of what is going on in our crop-lands.

Is it all worth it for $50,000 a year?

Having said that, it is questionable whether the average grain growing enterprise in WA has the capacity to grow and prosper when its farm business profit is less than $50,000 a year—below the average male weekly wage. For many the picture is far worse—the evidence is that substantial year on year losses are either eroding their equity in their land or causing them to realise other assets to stay in business. There must be a point where their ability to borrow sufficient money to plant a crop ceases. There must be a point—mustn’t there—where the Lenders say enough is enough?

The numbers for 2001 to 2004 for wheat growers were not a short term aberration.

In 2010 ABARE funded by the GRDC produced a report called Australian Grains.
Financial performance of grains producing farms, 2007–08 to 2009–10.

To the best of my knowledge this report, conducted by a federal government agency and funded by the GRDC, which in turn is funded by grain growers, received no publicity.

The lack of publicity is not surprising when the financial performance of all grain farmers is examined. Over the three years 2007/8, 2008/9, 2009/10 the percentage of growers showing a negative farm business profit is 50%, 60% and 61% respectively.

As far as the holy dollar is concerned the numbers are even more disturbing. Over the same three years all grain farmers showed a farm business profit of minus $1,500, plus $24,500 and minus $15,500.

The year 2009/10 was an estimate based on the average yield over time and the ABARE forecast price. As we all now know Mother Nature interfered with the economists view of the future. WA, our biggest grain-growing state, suffered a drought. For many on the other side of the country too much water at the wrong time played havoc with yields. So the numbers above will probably turn out to have been optimistic.

The OECD represents the 30 most industrialised countries of the world, including Australia, New Zealand and the U.S. and most members of the EU, but not China or Japan.

Farm subsidies in both the EU and the USA amounted to somewhere between 20% and 23% of farm receipts in 2010 according to OECD figures.

There has been little change over the last eighteen years. In the OECD, farm subsidies as a percentage of GDP have remained at about 0.35%.

Dollar values are hard to determine due to currency value fluctuations, but there is a new book out called ‘A Billion Dollars a Day’. So maybe that gives us some idea of what the rest of the world, including China, pays to their farmers to keep them in business

Hi Roger, I'm a little puzzled. Given that many farmers have the ability to offset considerable personal expenses against farm income, how much of that debt exists to fund such expenses with the understanding that it will be offset against tax? For example, the homestead, the family vehicle(s), possibly aircraft, communications such as phone, would all be expensed against the farm, or at least the cost of servicing the loans would be, is that not so?

A bald taxable income figure tends to disguise the actual funds available, it seems to me.

If they're losing money, why do farmers bother? Also, why is the subsidy paid to farmers elsewhere relevant to Australia except where our farmers are competing for sales in the same markets?

Sorry if these questions seem naive, I don't know a lot about agribusiness, but I am fairly well-informed about some aspects of horticulture.

It is true that many 'every day' expences, like they are for for many business people, motor vehicles and other such costs are paid for by the farm business as they are legitimate expences incurred in the running of the business, and yes the majority live on the farm.
I tried to find the ABS address for the numbers I quoted, I have it somewhere but I can't find it right now, I'll have a look later, but it does detail all expences and income to arrive at the conclusion it does. I'll post when I find it/them.
Why do farmers keep on farming? Whew! That is a complex question. The average age of Australian farmers is about 59. I don't know of a farmer who doesn't have to have their annual budget approved by a lender. The figures show that they are borrowing more each year. Average of 59 makes a heck of a lot of them well over 65.
The average age is cause for concern and is compounded by the shortage of students in ag universities and colleges and the general shortage of young people on the land. Many farmers I know would retire if they could find a buyer who will pay the price which will enable them to retire debt and retire, buy a house etc., with some dignity and with enough to retire on. It would also help if they had a successor who was prepared to take on the farm and the debt.

Subsidies. The last time I corresponded with a grain grower in the UK (2011) they were receiving 250 pounds per hectare from the EU for every hectare of crop. They sell into the same markets as we do. The subsidy makes them, and others, more resilient to poor prices.

Australia only grows 5% of the world's wheat but provides (depending on the season) 12% to 15% of the wheat that is internationally traded each year. 80% of that comes from WA. If the breakeven point in Australia for wheat is say 2 tonne/hectare (it's about that) you can see where the problems are, if the harvest falls below the breakeven figure, so the problems begin.
Australian agriculture exports, into world markets, about 70% of what it produces. Beef is our number 1 export with wheat number 2.
It is not unknown for governments, especially the EU and the US to subsidise surpluses into the 'market' and in so doing, depress market values.
You are not naive. I don't want to get jumped on by the moderators for being off topic, but the question of the lack of profitability in what is essentially the business of growing food is of great concern, to me at least.
The average age of farmers in Australia is similar to other developed nations, in the USA it is close to 70, in the EU about 59, the problem is there is a shortage of young farmers in the developed world and it is the developed world which will be called upon to provide the increase in food that will be required to feed the burgeoning world population.
Hope that helps.