U.S. farmers must know where they fit on the world stage to survive
A strong U.S. dollar might sound like a good thing, but it’s a decidedly bad thing for U.S. farmers dependent on export sales. That, plus bin-busting supply and intensifying world competition have put many farmers in a tough spot for 2016.
“We are in a global marketplace now,” says Dan Basse, president of AgResource Company, a Chicago-based analytics, news and research advisory service. “It’s the global balance sheet that determines where U.S. farmers go.”
This year, more than 100 countries are considered to have a grain deficit, including China. That means they do not produce enough grain to feed their own people and rely on imports to fill the gap. While the number of countries that rely on the U.S. and other exporters is large, supply still exceeds demand.
“All of a sudden, you have a world where, instead of worrying about corn stocks, we’re flush,” says Tom Sleight, U.S. Grains Council president and CEO. “We’ve outproduced demand.”
World trade is measured in U.S. dollars, so when the dollar is strong, U.S. farmers’ crops are more expensive compared with their competitors. Additionally, many countries, namely those in South America and the Ukraine, have improved their agricultural efficiencies and are increasingly competitive with the U.S. farmer.
“We’re in a post-ethanol hangover,” Basse says. “What scares us is that the world of agriculture has become so global. Before, the government could control supply more. This downturn could last longer—five to 10 years.”
Diets are changing around the world, with the biggest changes in meat and dairy consumption, creating new opportunity for U.S. farmers.
“Understand that the last eight years is not sustainable,” Basse says. “When we think about 2006 to 2014 it was really the buildout of global ethanol and biodiesel [that fueled demand]. We need to find new global
While the U.S. is at a record-low (in a non-drought year) 29% share of world trade, there are potential demand drivers out there. “Diets change over time,” says Gary Martin, North American Export Grain Association president and CEO. “There has been a fundamental change: an increase in proteins and disposable income available for food.”
As many Asian countries, including China and India, and some South American countries add meat to their diets, the animals providing that protein drive increased demand for feed grains such as corn and soybean meal.
“Be aware of your competitiveness globally,” Basse says. “You can’t pick up and move your farm to another country, but you can understand and gather information to see how you can be more competitive. You need to plan ahead to stay in business before the cycle changes again. Currently, the weight of cutting ag production falls on the shoulders of the U.S. farmer due to the rise of the dollar.”
Know where you stand on a global scale competitively and recognize to make money in 2016 and future downturn years, you’ll have to minimize production costs. It’s easier for farmers in other exporting countries, who don’t have to deal with strong currencies right now. U.S. farmers have to think smarter and work harder.
Start by thinking globally. Gather information where you sell products, understand international markets, have a good sense of U.S. competencies and where we are advanced or behind and how that might help or hurt export sales, Basse says. For example, a growing number of foreign buyers want proof U.S. soy exports were raised sustainably.
“U.S. farmers set the world standard for ag production,” Sleight says. “The best cost-saving you can achieve comes from being a smart global manager and taking advantage of technology. The world is your market.”
Grain Deficits Could Lead to New U.S. Opportunity
There are 119 countries with grain deficits, those who don’t produce enough grain for their needs. These countries could provide new trade opportunities for U.S. exporters. The map below reflects each country’s grain deficit in 1,000 metric tonnes. China has the largest deficit followed by Japan, Egypt, Mexico and Saudi Arabia. (USDA FAS: production, supply and distribution)
What Countries Should You Be Watching?
You’re no longer in a market where only understanding U.S. news and currencies will suffice. But there are nearly 200 countries in the world. Which ones should you actually follow?
Keep an eye on current import markets such as China, Japan, Korea, Egypt and Mexico, says Gary Martin, North American Export Grain Association president and CEO. Whatever happens in those markets will affect the U.S. in the short term. Mid- to long-term, he says to watch developing countries—India, sub-Sahara Africa and the Middle East.
Know what countries are key players to your crops and keep an eye on the news for anything that could be a demand shifter. This could include major weather and environment events, political unrest, supply shortages and income swings.
“We’ve talked about how U.S. agriculture is positioned and how we can respond to global demand,” Martin says. “Be opportunistic. It’s clear to me the U.S. farmer is at the forefront of meeting global food, fiber and energy needs today and in the future.”