U.S. farmers are well positioned to capture the opportunities that political and economic realignment around the world will bring. Peter Zeihan, director of global analysis, Stratfor Group, is most bullish on U.S. grain exports during the upcoming economic upheaval, less so on beef and pork.
While Zeihan is optimistic for farmer fortunes, "it will be a very rocky road. It won’t be a straight line to heaven," he said at the Top Producer Seminar in Chicago.
One key reason Zeihan remains bullish for the U.S. farm sector is because the nation has such a comparative transportation advantage. This is particularly true with the U.S. river system that puts the majority of agriculture within 200 miles of a major river thoroughfare, along with a highly developed port system. Zeihan does not discount the fact that the U.S. system is in need of repair and investment, but firmly believes that overall, the U.S. transportation has no equal. All Brazilian ports combined, for instance, are no larger than the Port of New Orleans.
In Brazil, farmland is in the hands of oligopolies, and each oligopoly is developing its own transportation network that is not shared for maximum benefit like it is in the U.S. By and large everything has to be trucked 1,000 miles in Brazil. Imagine the impact it would have if all U.S. farm goods had to be trucked that far, he asks. River shipping has a 70 to 1 advantage over any other form of transport. That said, he is optimistic on Brazil over the long run, though developing an adequate transportation system there could take decades.
The world financial structure is on the edge of a major evolution," Zeihan says. Against such a backdrop, the U.S. is an island of stability. "America will be calling the shots for a while."
Two examples of the coming worldwide financial change: Europe, with changes possibly being implemented within a year, and China, with major financial change more likely three to five years ahead.
"In three to five years, the Chinese (financial) system will crack," Zeihan says, despite the nation’s rapid economic growth. While China claims to have an inflation rate of 3% to 5%, it’s probably more like 20% to 25%. Furthermore, only 30 million Chinese have a middle class existence, with more than 1 billion of its mammoth population living at the level of sub-Sahara Africa.
That’s not all. Chinese lending to industry is not based on profitability, as it is in capitalist countries. Instead, government loans are made based on how many people will be employed by the loan. Upshot: the system has been making many bad loans for years. From 2007 to 2009, the Chinese tripled lending output, but when loans could not being able to be paid off with profits, the money supply tightened, and in response, the government started printing more money. It’s bizarre to have such an inflationary/deflationary mix, Zeihan says.
He believes that there is no reason to panic about grain exports to China, but "pork is not a staple in China." It’s not as good a business to be in when things in China go down, Zeihan notes.
One impact of major global economic reforms is that the U.S. dollar will become an even more favored currency than it is today. "My concern is how the Fed with adapt to a (global) mono-currency block, the dollar."
See all of the news, photos, videos and more from the 2012 Top Producer Seminar in Chicago, Ill.