U.S. Ag Remains on Top for Now

November 28, 2012 01:00 PM

It’s a short-term, long-term story

With all the talk about rising global competition, farmers might be concerned about where U.S. ag ranks. Experts say there’s no need to worry for now; the U.S. remains a leader.

"The U.S., specifically the Corn Belt, is uniquely blessed with a great climate, adequate moisture and great soil," says Bob Thompson, a senior fellow with the Chicago Council on Global Affairs and professor emeritus at the University of Illinois at Urbana-Champaign. "Couple our natural resources with the nation’s infrastructure and investments, and it’s clear: the U.S. still has an advantage."

"In the longer run,
countries are trying to
achieve a greater degree
of self-sufficiency"

South America still has a way to go. "Their rivers rise and flow upward, so they can’t use water as efficiently," Thompson says. "Their rail system is antiquated. A truck might have to drive 1,000 miles on dirt roads to get grain to a port."

Brazil has compensated for its infrastructure deficiency by investing in research. It plants soybeans from horizon to horizon, and its yields are similar to U.S. yields.

"The U.S. cut back research when Brazil was ramping up," Thompson says. "China’s public sector is investing about $3 billion in ag biotech research." Critical of lagging public sector investment in the U.S., Thompson says we’re still at the front but are slowly sliding back.

A Changing World. In the long run, he says, it doesn’t matter because world demand for ag commodities will grow between 80% and 100% during the next 40 years. Demand is going to outrun supply.

India’s population will reach 350 million by midcentury, more than China’s. This won’t result in as large an increase in meat consumption as in China, but it could have a bigger impact on the grain economy.

Despite Ukraine and Russia having some of the best soils, Thompson is not concerned. "They lag in yield and infrastructure, and have been slow to adapt," he says. If he were to be concerned, he adds, it would be with sub-Saharan Africa.

"Their geographic location alone allows them to do in the next 25 years what Brazil did in the last 25 years," he says. "They have just as much potential as Brazil did in soybeans, but they have a lot of problems. Just as in Brazil, production costs will be higher, but if they can overcome the government, there’s no reason they can’t come on like Brazil did."

Unlike Thompson, Phil Abbott, a Purdue University agricultural economist, is concerned about demand destruction for the short term. He explains that China’s pork consumption has increased. The Chinese are growing most of their own corn and importing soybeans. The U.S. share of soybeans is decreasing as China buys more from Brazil and Argentina.

Land allocation is a large part of the equation. "In the U.S., there’s been a reshuffling of land to sell more soybeans to China and burn more corn for ethanol," Abbott says. "When prices spiked in 2008, there was virtually no reduction of purchases by many importers. In the short run, countries will not compromise their food security. In the longer run, those countries are trying to achieve a greater  degree of self-sufficiency. "

Prior to 2008, Abbott says, the U.S. accounted for more than half of the world’s total corn imports. Since then, Brazil and Argentina have emerged as export players. "We’ve had three bad years in a row and we’ve cut our herds down to decrease grain consumption," he says. "What share of rationing is going to happen with exports? We’ll lose some of those markets to other countries."

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