I’ve been on the road talking to producers again this winter. In general, they seem to be happy with the way things have gone for them during the past few years, but they are starting to see storm clouds on the horizon. They wonder how aggressively they should defend their expected 2012 and 2013 production or, to put it another way, how aggressively they should expand.
To gain some perspective on the future, it’s necessary to move beyond the simple supply and demand of the ag commodities and focus on the big-picture fundamentals that will drive the domestic and global economies. Hopefully, by developing a better understanding of the macro forces, we can prepare for the shocks and opportunities that lie ahead.
An economically strong country rests on four fundamental pillars:
1. Natural resources and a good climate to produce crops. The U.S. is blessed, along with a few other regions of the world, but we are one of the strongest.
2. An established river and/or transpor-tation system to move products from production to usage areas. The U.S. has the biggest river system in the world, as well as a mobile interstate system that can move products.
3. A stable labor pool.
4. A source of energy. The world has found enough energy to enable the industrialization of the U.S. economy. Moving from a wood-based energy economy to a petroleum-based system allowed tremendous growth in the mechanization of industry, transportation and agriculture, which all helped the U.S. raise the standard of living to the highest level in recorded history.
The U.S. has been blessed in almost all areas to become the superpower it is today. The issue now is, where to next?
In light of the changing financial structure, there are several macro fundamentals that I
believe will cause major uncertainty in the future. It’s important that farmers understand and factor them into their pricing decisions.
The labor pool is changing in the U.S. and other industrialized countries such as Japan, China, Russia and countries in Europe. The baby boomers are retiring or close to it.
This shift has two impacts: the econ-omy is not getting as much stimulus and the government is not getting as much tax money.
- March 2012