Scherr: Lower Prices, Stronger Demand to Boost Ag Consumption

December 5, 2013 04:37 AM
 

Bruce Scherr, Chairman and CEO of Informa Economics painted a rosy picture for U.S. agriculture ahead at the 2013 Farm Journal Forum. Many tend to get anchored to the supply side of agriculture and the lower prices this year’s larger crops imply. Instead, Scherr encouraged stakeholders to think about how the global economic situation has changed and the favorable trajectory for U.S. and global ag production. Agriculture is not settling into doldrums; rather, the industry may be at the brink of one of its strongest periods in history, according to Scherr.  

At the forum, co-hosted by Informa Economics, Scherr detailed how rising population, income and taste preferences over the past decade have lifted corn, soybean and wheat demand despite a significant increase in prices. Looking ahead, Scherr says strong demand coupled with lower prices imply an increase in consumption, if you believe the markets work. The question, according to Scherr, is whether that increase will be a modest one or a surge. He favors the latter view. Chinese demand is strong, the question is whether the U.S. and South America can provide it, Scherr continued.

The supply side is not the anchor; rather improving macro-economics are seen as a catalyst. Scherr expects organic growth in the U.S. along with less fiscal drag in 2014 could set the stage for a 2.6% spurt in the U.S. economy, barring any headwinds from lawmakers. Scherr also said this projection would be even higher if it wasn’t for an inept Congress. The U.S. economy could serve as a centerpiece for global economic growth going forward. This sets the stage for a dramatic increase in consumption, according to Scherr.

From a price-perspective, he notes that ag commodities have gained real inflation-adjusted value and that grain and soybean prices are likely to stabilize over the near-term and then eventually rise over time. Getting infrastructure in place to handle this increased consumption will be key, Scherr explains.  

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