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Peter Zeihan Talks China and Commodity Markets

16:01PM Feb 11, 2019
Peter Zeihan_2-11-19

Background: Peter Zeihan grew up in Marshalltown, Iowa. His career has included stints with the U.S. State Department in Australia, the Washington, D.C., think tank community and Stratfor, a private intelligence company. In 2012, he formed his own
analytical firm, Zeihan on Geopolitics. He is the author of two books: “The Accidental Superpower” and “The Absent Superpower.”

Education: Master’s degree in political and economic development, Patterson School of Diplomacy; postgraduate diploma in Asian studies, University of Otago in New Zealand; bachelor’s degree in political science, Truman State University.

Favorite leadership quote: “The enemy gets a vote.” —General James Mattis

What trend should farmers have on their radar?

Supply chain security. If you break down the global system, the longer and more complex the supply chain is, the greater the propensity for disruption. So, for example, a car has 30,000 pieces. If you only have 29,999, you don’t have a car. For agriculture, it’s much simpler. There’s only about 30 things you need to worry about, as opposed to 30,000. But the point stands. Any supply chain that is integrated in places in central or eastern Europe, the Persian Gulf or Northeast Asia are places that are going to face mass disruption. Whether that’s a key part for a tractor or chemical input, that’s a problem. Now the U.S. has the infrastructure, the industrial plants, the intellectual capital and the funding to replace pretty much anything, but that doesn’t mean it can happen over night. It’s time to start having conversations with your suppliers about what their supply chain looks like, so at least you know, and then you can start to plan.

You study population demographics. Which countries have interesting stories to tell? 

Argentina. One of the upsides of the disastrous governments that they’ve had in the past 20 years is all the basic inputs for normal civilian life have been heavily subsidized. Now, they’ve done that to the degree that it’s crushed the economy in many ways, but it meant people could afford to have a house and raise children. So, they’ve got an almost pre-industrial population structure, which means Argentina is going to be in the game in the worst-case scenario for another 80 years. You add that with their geography in their physical location, they’ve got a golden century.

On the flip side, Ukraine is one of the most damaged ones. It suffered the birth rate collapse like Russia. It suffered far more intensely from the World War II devastation than the Russians did. And, they have more people in their 60s than their 50s and more people in their 50s than their 40s, etc. Their agricultural sector is much more labor intensive than ours, and they don’t have the labor. They have some of the world’s most productive farmland that is starting to go fallow. 

How do you see the trade disputes playing out between the U.S. and China?

Well, that’s unfortunately really up to the decision making of three people: National Security Adviser John Bolton, U.S. Trade Representative Robert Lighthizer and President Donald Trump. Bolton is easy to predict; he’s a bulldog. Lighthizer doesn’t give interviews, so he’s a black box. And then Trump, I have no idea. If I had to guess, this will lead to confrontation sooner rather than later, and it will be more rather than less disruptive. It appears to me, the goal is to break the Chinese system, and I’m saying that with about two-thirds confidence. The big question is how hard and how fast. 

How can farmers create a farm business that aligns with emerging trends?

Find new sources of demand. The China story is ending, but other stories are starting. Southeast Asia, I think, is going to do everything for the agricultural sector in this country we thought China would do. It won’t be as fast or clean, but it’s more sustainable. The upward trajectory for most of those countries is stable. 

What is the geopolitical landscape for the corn and soybean markets? 

I’ve got very real concerns about corn, in terms of input requirements, particularly for fertilizer per unit of output. It’s the highest demanding crop the U.S. produces. It’s primarily used to fuel animal protein around the world, which is not stable. As far as ethanol goes, we don’t need it in the shale environment. The amount of corn in ethanol will probably only go down.

For soybeans, you might have to grow a slightly different grade if you’re going for human consumption rather than animal consumption. But a lot of the places that have made the switch from plant protein to animal protein, are ones that used tofu before. Also, we’ll continue to use a lot of soy here for our beef market, specifically for stuff going to Mexico. Mexico is probably going be the world’s fastest growing beef market. As soon as Mexicans can afford any animal protein, they go for beef. And if they ever have a choice, they go for American beef, because Mexican beef is nasty.

How can farmers build a team that will be successful in the future?

In times of rapid change, no matter how good the staff is, no matter how much foresight the administrators have, the educational curriculum will always be irrelevant by the time it gets to the kids. You’re not going to be able to hire the staff you want—you’re going to have to raise them, which means looking for college grads or post college grads is probably not the place to start. It’s better to start in high school, and if you have the time horizon, elementary school.