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
ManagementMACA 2014: The State Of The Agricultural Industry, And Then Some
October 9, 2014
The trade association’s annual gathering featured speakers from across agriculture and beyond. Read More
StewardshipA Multi-Layered Approach To Water Quality
October 6, 2014
Illinois event highlights research and technology designed to better monitor and improve water quality — and the benefits of cooperative, coordinated effort. 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
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
Top 100 Articles
CropLife 100The Andersons Acquires South Dakota Plant Nutrient Manufacturer Kay-Flo
May 20, 2015
The Andersons, Inc., ranked No. 22 on the CropLife 100, has purchased Kay Flo Industries of North Sioux City, SD. “This Read More
CropLife 100North Central Farmers Elevator, Wheat Growers Unification Approved By Board, Still Awaits Member Approval
May 13, 2015
The Boards of Directors for North Central Farmers Elevator (NCFE) and Wheat Growers (WG) have voted to approve the Unification Read More
CropLife 100AgGateway’s Barcoding Initiative Progressing Nicely
May 8, 2015
According to legend (or Wikipedia), the first step towards modern bar codes came back in 1948, when Bernard Silver, a Read More
CropLife 100Pinnacle Agriculture Acquires Minnesota Retailer
April 14, 2015
Pinnacle Agriculture Holdings, LLC, ranked No. 6 on the CropLife 100,  has successfully acquired Liebl Ag, LLC in Ada, MN.  Read More
CropLife 100CHS, Aurora Cooperative Complete Fertilizer Storage, Grain Shuttle Loading Facility
April 13, 2015
CHS Inc., the nation’s leading cooperative and ranked No. 5 on the CropLife 100, and Aurora Cooperative (ranked No. 21) Read More
CropLife 100GROWMARK Acquires Missouri Refined Fuels Terminal
April 2, 2015
Bloomington, IL-based GROWMARK and Magellan Pipeline Co. have entered into an agreement in which GROWMARK will acquire the refined fuels Read More
Latest News
ManagementA New Sprayer Company & UAV Research In The Spotlig…
May 21, 2015
CropLife’s Paul Schrimpf and Eric Sfiligoj talk about a Dutch sprayer manufacturer entering the U.S. with a super-sized entry and Read More
HerbicidesFirst U.S. Sale Of Enlist Duo Herbicide Made By Dow Agr…
May 21, 2015
Dow AgroSciences has recorded the first U.S. sale of Enlist Duo herbicide with Colex-D Technology. This marks the first commercial Read More
CropLife 100The Andersons Acquires South Dakota Plant Nutrient Manu…
May 20, 2015
The Andersons, Inc., ranked No. 22 on the CropLife 100, has purchased Kay Flo Industries of North Sioux City, SD. “This Read More
EquipmentNORAC Options Coming To TerraGator
May 19, 2015
Utilizing NORAC’s Standard Control technology, boom height control is now available for TerraGators with Airmax Precision 2 and Benson Booms. This Read More
Crop InputsHelena Introduces New Soil Health Product
May 19, 2015
Helena Chemical Co. is helping agricultural producers maximize yields and efficiency with the introduction of Liquid Chisel, a new product Read More
Stewardship4R Nutrient Management Planning Certification Now Avail…
May 19, 2015
The American Society of Agronomy (ASA) and the International Certified Crop Adviser (ICCA) program announce a new specialty certification in Read More
Environmental Defense Fund logo
Paul SchrimpfEnvironmental Defense Fund: Appreciating Partners
May 19, 2015
I WAS deep in the throes of preparation for the Commodity Classic meeting that took place this past February, trying Read More
WebinarsUpcoming Webinars
May 19, 2015
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
Syngenta Sign
Seed/BiotechSyngenta Responds To Lawyer’s Victory Claim In Vi…
May 18, 2015
A plaintiff’s lawyer has issued a public statement claiming that damages have been awarded in the Agrisure Viptera corn lawsuits Read More
StewardshipCould Australian Water Trading Approach Fit In Californ…
May 18, 2015
Ten years of drought isn’t a good thing. It doesn’t help the bottom line of farmers or the health of Read More
SpreadersDutch Sprayer Manufacturer To Enter U.S. Market
May 18, 2015
Dutch self-propelled sprayer manufacturer Agrifac Machinery has announced intentions to enter the U.S. market with two models of sprayers available Read More
FertilizerTFI Weighs In On Fertilizer Rail Transport Bill
May 14, 2015
With today’s House Committee on Transportation and Infrastructure as a backdrop, The Fertilizer Institute (TFI) registered its support for policies Read More
ManagementA Visit To The 2015 Environmental Respect Spirit Award …
May 14, 2015
CropLife’s Paul Schrimpf and Eric Sfiligoj talk about a recent visit to the CPS Spirit winner in St. Stephen’s Church, Read More
StewardshipBayer Entomologist Issues Statement On Annual Honeybee …
May 13, 2015
Richard (Dick) Rogers, Principal Scientist / Entomologist, Bayer Bee Care Center for Bayer CropScience LP, today issued the following statement Read More
Crop InputsKansas State Researchers Announce Resistant Kochia Brea…
May 13, 2015
Kansas State University researchers say new research helps explain why an invasive weed is developing resistance to a well-known herbicide, Read More
RR2X soybeans surround untreated check (center)
HerbicidesUSDA Study: Glyphosate Application More Prevalent In So…
May 13, 2015
Glyphosate—known by many trade names, including Roundup—has been the most widely used pesticide in the United States since 2001. It Read More
AdjuvantsHelena Chemical Introduces New Drift Control Adjuvant J…
May 13, 2015
Helena Chemical Co. introduces Justified, an innovative drift control agent designed to improve the performance and precision of spray applications Read More
CropLife 100North Central Farmers Elevator, Wheat Growers Unificati…
May 13, 2015
The Boards of Directors for North Central Farmers Elevator (NCFE) and Wheat Growers (WG) have voted to approve the Unification Read More