Gauging The Ag Market

Capitol Building

Following the Great Recession and collapse of input/commodity prices of the past few years, virtually everyone in the agricultural market is asking the same question — when will normal return, if ever? In an attempt to answer this question, the Mid America CropLife Association invited several economic and agricultural experts to its annual meeting in Bloomington, MN, for some insights.

The association’s acting president for 2010/11, David Flakne, senior state government relations manager for Syngenta Crop Protection, laid out just how complicated this question has become since the crash of 2008. “Is $7 corn and 300 bushels per acre the new normal?” asked Flakne. “And what about social media? How will this fit into our world? Finally, what about the new EPA regulations on our industry, which seem to be on steroids in what’s being proposed?”

First up to try and tackle some of these questions was Dr. Michael Swanson, agricultural economist and consultant for Wells Fargo & Co. Swanson pointed out that today’s agricultural market is in as good a place as its ever seen. “I think it’s pretty unanimous right now — people are very enthused and energized about agriculture,” said Swanson. “The amount of revenue today in the marketplace has literally tripled in the past three to four years.”

As for what’s driving this growth, there are two interconnecting factors. The first is how world markets have started buying U.S. crops and kept doing so despite higher prices, particularly China. “I don’t think we’ve appreciated how much this has impacted agricultural economic growth,” said Swanson. “And as China’s population changes its diet to include more protein intake, the demand for feed grain has been on a steady climb.”

The second factor is the U.S. policy regarding biofuels, with a heavy emphasis on corn use to produce ethanol. “With the federal mandate on the blend requirement for cars, the markets have decided that corn and ethanol prices are completely locked,” he said. “This has brought a lot of speculators into the marketplace, which has kept prices fairly high.”

What Goes Up …

So given this current rosy outlook, what could possible go wrong? That, said Swanson, is a very good question.

“I guarantee you — anything this good is not going to last forever,” he said. “What pushed us up into this stratosphere of good fortune is going to be the single biggest risk for us. And I think that the people that are buying inputs have not yet come to the right conclusion on how to manage this risk.”

Part of this risk comes from the fact that today’s agricultural marketplace is heavily tied to what occurs in the general economy and overseas markets. “For example, if China had a couple of down years in a row and stopped buying from products, commodity prices and exports would probably collapse,” said Swanson.

The same uncertainty goes for biofuels. “Five years ago, ethanol policy was golden in Washington, DC,” said Swanson. “Today, it’s under attack. As a country, you can’t keep spending $1.5 trillion more than you take in every year forever. This means that, perhaps, the current biofuels policy is subject to being reversed.”

To prepare for this possible reversal of fortunes, Swanson had a few suggestions for ag managers. “One, manage what you can,” he said. “If you don’t want to manage risk, you will need more working capital on hand to survive a downturn.”

He also suggested that agricultural operators not assume credit can be obtained at a moment’s notice, despite today’s low interest rates. “Lending availability is an illusion,” said Swanson. “I don’t care how low interest rates are. Once banks decide they don’t trust anybody, there will be no money available, period.”

Another bright spot for agriculture is the performance of exports. According to Tim Emslie, commodity research analyst for Country Hedging Subsidiary of CHS Inc., U.S. ag exports topped $115 billion in 2010 and are on track to hit $150 billion in 2011, up 30%.

“What’s going on here?” said Emslie. “In a word, China. The country has a policy in place right now to grow its Gross Domestic Product using exports as a key component.”

The Tech Beat

On the spread of technology, Dave King, Associate Provost for outreach and engagement at Oregon State University, offered an example on how quickly it’s become a global concern.

“Recently, I had a chance to visit with a group of people living in a mountain village 8,000 feet up located in central China,” said King. “The residents of this village grow corn, wheat and potatoes, half of which they eat themselves and the other half they use as currency to trade for goods from neighboring villages. One night, the village leader leaned over to me and said: ‘I have only one question for you. When will we be get the Internet here?’

Inquiring why Internet access was important to the village, the leader explained to King that some of the corn its farmers were growing that year wasn’t doing very well. “If we had the Internet, we could have done some research and maybe gotten a better variety of seed corn to plant instead of what we ended up with,” he said.

Of course, when it comes to newer technology seeing rapid adoption, nothing comes close to smartphones. According to King, approximately 35% of U.S. adults own a smartphone.

“Three to five years from now, smartphones will be the primary way people connect with the Internet,” he predicted.

Leave a Reply

Management Stories

StewardshipMichigan Agriculture Leaders On Toledo Water Ban: We Want To Be Part Of The Conversation
August 8, 2014
Leaders of Michigan agricultural organizations said Thursday that the government should not have a “knee-jerk reaction” based on last weekend’s water ban in Toledo due to fertilizer run-off in Lake Erie. Read More
ManagementRussia Bans U.S. And EU Ag Product Imports In Ukraine Sanctions Battle
August 7, 2014
Russian President Vladimir Putin has banned the import of agricultural goods from countries that have imposed sanctions on Russia. Read More
EmployeesAsmark Institute Dedicates New Training Center To Ford West
August 6, 2014
The Asmark Institute plans to recognize the retired industry leader's years of service to the fertilizer industry at the new state-of-the-art facility in Owensboro, KY. Read More
LegislationUSDA: Quick Implementation Of Disaster Assistance Programs A ‘Top Priority’
July 9, 2014
USDA has processed 106,000 payments to farmers in 40 states across the country who suffered livestock and grazing losses between Oct. 2011 and passage of the 2014 Farm Bill. Read More

Trending Articles

MAGIE 2014 ShowStopper
EquipmentJohn Deere Again Wins MAGIE ShowStopper Award
August 25, 2014
For the second consecutive year, John Deere was honored at the Midwest AG Industries Exposition (MAGIE) for its new R4045 sprayer. Read More
ManagementExpert To Discuss Farmland Value, Rent At Farm Science Review
August 18, 2014
While cropland values in Ohio increased in the past two years, they have remained flat in 2014, declining in some cases, according to an Ohio State University agricultural economist. Read More
EquipmentAdvance Your Technology IQ At MAGIE
August 13, 2014
The Midwest AG Industries Exposition (August 20-21) is the place you need to be to see, study and evaluate how new advances in the equipment, operations, crop protection and fertility sectors can help your business prosper. Read More
HerbicidesScouting Key To Next Season’s Soybean Herbicide Program
August 12, 2014
When growing soybeans, growers need to think ahead to stay one step ahead of weeds. That means examining weed threats and evaluating which herbicides work best. Read More
StewardshipMichigan Agriculture Leaders On Toledo Water Ban: We Want To Be Part Of The Conversation
August 8, 2014
Leaders of Michigan agricultural organizations said Thursday that the government should not have a “knee-jerk reaction” based on last weekend’s water ban in Toledo due to fertilizer run-off in Lake Erie. Read More
CropLife 100BRANDT Acquires Lemon Ag Services
August 4, 2014
The acquisition of Lemon Ag fits BRANDT’s aggressive corporate strategy of providing superior agronomic advice and services for customers in central Illinois. Read More

Latest News

Seed/BiotechBerendes Joins Verdesian Board Of Directors
September 2, 2014
Verdesian Life Sciences announced that Robert Berendes has recently joined the company's board of directors. Read More
CropLife 100Pinnacle Acquires East Kansas Chemical
September 2, 2014
Ranked 82nd on the CropLife 100, East Kansas Chemical will operate as part of Pinnacle's Performance Agriculture brand. Read More
WebinarsWebinars On Demand
September 2, 2014
Register for one of our upcoming Webinars or access our archive of past Webinars to view recordings of presentations that may be of interest to you. Read More
CropLife 100Pinnacle Launches Performance Agriculture Brand
September 2, 2014
Performance Agriculture complements Pinnacle’s existing brands, including Sanders, the company’s flagship farm input retail brand. Read More
Webinars5 Key Benefits Of Attending A Webinar
September 2, 2014
Webinars can provide ag retailers with a convenient option for gaining knowledge on the latest industry issues and solutions. Read More
Crop InputsBASF Is Betting On A Bright Agricultural Future
September 1, 2014
The crop protection products giant is gearing up for a busy time in agriculture by investing in both product production and development over the next couple of years. Read More
Eric SfiligojAn Erie Feeling For Ag
September 1, 2014
Plenty of water issues have been in the news lately, including the continuing drought in California. Read More
CropLife 100Pinnacle Acquires California-Based Retailer
August 29, 2014
Pinnacle Agriculture Holdings will acquire Kerman Ag Resources, Inc., which will operate under Pinnacle's Performance Agriculture brand. Read More
Allied Cooperative Grain Plant
ManagementArcadia Co-op To Merge With Allied Cooperative
August 28, 2014
Allied Cooperative has announced that members of Arcadia Co-op voted in favor of a merger with Allied Cooperative, paving the way for the consolidation which will be effective on December 1, 2014. Read More
InsecticidesBioinsecticide VENERATE Now Registered In California
August 27, 2014
Marrone Bio Innovations' VENERATE is a new tool to help California growers control crop-damaging insect pests, fight the development of insect resistance and reduce pesticide residues on fruits and vegetables. Read More
CropLife 100Two Iowa-Based Ag Co-ops To Merge
August 27, 2014
The Board of Directors and management of United Western Coop, Missouri Valley, IA has completed a merger with Heartland Co-op, West Des Moines, IA, effective September 1, 2014. Read More
FertilizerKoch Expands AGROTAIN Nitrogen Stabilizer Portfolio
August 26, 2014
Koch Agronomic Services, LLC has added two new innovative nitrogen stabilizers to the AGROTAIN product family – AGROTAIN ADVANCED and AGROTAIN DRI-­MAXX. Read More
Seed/BiotechDuPont To Build Two Seed Treatment Centers
August 26, 2014
DuPont has announced construction on two state-of-the-art centers dedicated to developing and testing seed treatment formulations, applications and seed handling techniques in an important step toward bringing new solutions to growers. Read More
Seed/BiotechLoveland Products Acquires A Controlling Interest In Ag…
August 26, 2014
Loveland Products, a subsidiary of Agrium , has announced the company has acquired a controlling interest in Agricen, a Dallas-area agricultural biotechnology company delivering biochemical-based products for efficient and sustainable plant nutrition. Read More
StewardshipUp Close Look At The 2014 Environmental Respect Award W…
August 25, 2014
The 2014 Environmental Respect Award winners were honored recently at the 24th annual event in Wilmington, DE. Read More
Eric SfiligojAg Science Rejection Carries Consequences
August 25, 2014
As innuendo and fear dog the regulatory process, agriculture can’t get the new tools it needs to combat world hunger. Read More
LegislationFarmers Dismayed As New Farm Bill Dumps Direct Payments
August 25, 2014
The threatened end of cash subsidies to the nation’s row crop farmers dates back through at least the last two iterations of national agriculture policy legislation. Read More
MAGIE 2014 ShowStopper
EquipmentJohn Deere Again Wins MAGIE ShowStopper Award
August 25, 2014
For the second consecutive year, John Deere was honored at the Midwest AG Industries Exposition (MAGIE) for its new R4045 sprayer. Read More