Agricultural investment, the world’s economic situation and the prospects for U.S. agricultural income were aspects of several presentations during the AgroNomics Vision 2014 conference and 84th annual meeting of the American Society of Farm Managers and Rural Appraisers.
Dealing with Asia and China specifically was mentioned often. Both David Kohl, professor emeritus Virginia Tech University, and Daniel Sumner, University of California, Davis, talked extensively about China and how the country has to deal with 800 million people who are trending toward urban living and away from rural areas. Today there is an approximate 50/50 split of urban and rural population. Sumner projects 65 percent will be urbanites by 2030.
Feeding the Chinese people as the population continues to increase to the year 2050 means trying to keep the population employed, and non-modernized farming keeps more people employed. But these rural people see their urban kin having a better standard of living and a less harsh life in general; therefore, the temptation is to move to cities even though the government tries to limit such movement.
Sumner quoted Dermot Hayes of Iowa State University in saying, “If China did not import soybeans, we would be growing continuous corn” in the U.S., and “if China frees its people to move to the city, it will need as much as 140 million tons of corn (more than five billion bushels).”
EXPORTING MEAT, NOT GRAIN
The outlook according to Kohl, Sumner and K.C. Conway, chief economist USA with Colliers International, is an approach of China and some other countries importing more meat rather than the grain to raise their own livestock. It is cheaper to ship the meat rather than the bulk grain, and as for China, the country is so polluted that processing in the U.S. is more sanitary and healthy.
Sumner said China’s hog industry “is already an environmental disaster,” and shipping pork rather than grain makes a whole lot of sense. It still requires nearly as much grain to raise the hogs required by the Chinese.
And as Kohl put it, “Fifty percent of the water in northern China cannot be used for industrial purposes because it is that rotten.”
Conway explained a trend toward improved eastern and southeastern sea ports in the U.S., including major developments with inland ports being built a hundred miles up from historic cities such as Charleston, S.C., or Savannah, Ga. He noted that processing plants are and will spring up near new ports so that processed goods and meats can be container shipped. This is more efficient than shipping grain in bulk transports, he said.
LOCATION AS AN ADVANTAGE
Being located near rail and ports should be reflected in higher land prices throughout the nation, Conway said. “One of the things we are not getting credit for in agricultural land is location advantages in the supply chain and distribution—access to roads, access to rail and access to ports,” he said.
Conway proclaimed that the U.S. has a terrible national infrastructure because money that should be used for infrastructure upgrades is being stolen by the executive and legislative branches of the federal government for purposes contrary to transportation tax and trust money’s original purposes.
But rail shipping will improve with direct routes pretty much in place from the Midwest to eastern container ports.
“Match-back” of containers loaded with imported goods and East Coast manufactured items can be back filled in the Midwest with grain headed for export or processing facilities. Containers double stacked on rail cars is the way of the future, outside of the outdated infrastructure around cities of the North and Northeast, according to Conway.
Even if bulk shipments can be sent to California, Conway contends the 8,000 mile shortcut through the ungraded Panama Canal by 2016 will make the southeastern ports competitive in shipping to all parts of the world including Asia. Part of it has to do with West Coast big city ports having extremely burdensome, expensive union contracts and slow operations compared to the non-union southern ports. In the near future, Conway said he sees 70 percent of the traffic that goes out of Portland, Ore., disappearing because of labor union contract problems.
The Panama Canal currently can accommodate a ship carrying up to 5,000 containers, but starting in 2016, a ship carrying up to 12,500 containers will be able to go through the canal.
As Conway further noted, ports in the South and upgraded ports of the Great Lakes make it easier to service nations of South America, Europe and even Russia. Doing business with all the developing and emerging nations of the world is of major importance for the U.S. ag economy.
GROSS DOMESTIC PRODUCT CONCERNS
Gross domestic product of nations is a major indicator of economic health and what to expect, according to all three speakers who provided comments to the crowd at different times during the AgroNomics Vision conference.
Conway noted, without agriculture this country’s GDP would be worse than it is. “Look what’s happening on the GDP front. We are like one of the weakest in growth; we’re like 23rd in the world,” he said.
Kohl mentioned Brazil, Russia, India, China, South Africa, South Korea, Indonesia, Mexico and Turkey as emerging nations of major importance to the U.S. ag economy. He contends the future U.S. “economic prosperity and wealth [will] center around these emerging nations,” which account for 25 percent of the world economy. Since 1998, he noted, “they have accounted for 53 percent of the world’s economic growth.”
Kohl explained his 8-5-3 GDP rule. “If you see the gross domestic product of these nations averaging above 8 percent, which since 1998 has averaged 9.8 percent, then there is going to be heavy demand for food, fiber and fuel—oil, copper, steel, etc. If it drops back to 5 percent demand softens, and if it drops back to 3 percent, it means these countries are in a recession. And rural America goes into a recession.”
Another consideration about rural America economics is that the wealth is not being generated as much from the crops today as it has been in recent years. For rural America, it is becoming a situation of what is under the ground instead of what is on top of the ground. “We have this great wealth in agriculture and in rural America, but much of it is coming from oil, gas and minerals,” Kohl said.
He further mentioned that “water will be the new gold in the West and certain parts of the Midwest.”
Being additionally positive about rural America, Kohl suggested that technology will pull farmers and landowners through potentially tough times.
“Technology is going to have a big influence. Look at the drought a couple years ago; it could have been a lot worse if we didn’t have technology. You won’t believe what is coming in technology. You
are seeing the convergence of three technologies that will influence your industry—biotech, information tech and engineering tech. These are going to change where we farm, how we farm and our land management practices.”
LOOKING LONG TERM
Kohl countered the positive with comments about how a “crash or bubble” in national economics and land prices has occurred every 30 to 50 years. He quoted the old saying that “the first generation makes it, the second generation holds it and the third generation loses it.”
Although Sumner focused mostly on Asia in his presentation, his “bottom line” long-range projections and comments appeared to hold truth for dealing with most, or all, emerging and developing nations having trading relations with the U.S. He provided the following thoughts:
“Growth fundamentals mean strong demand for U.S. farm products derived mainly by income growth [of emerging and developing nations] as the new middle class emerges and wants to consume what we sell.
“Animal products and the feeds for those animals have continued growth prospects, and the U.S. has a strong comparative advantage [to other countries].
“High quality fruits, vegetables and tree nuts also meet the profile of food that will have growing demand as incomes rise above the most dire poverty.
“We should hope that productivity growth continues to allow the poor to continue to eat better and spend smaller shares [of money] on food as has been true for most of the past 70 years. Then, so long as U.S. productivity growth does not lag, agriculture here is poised to benefit.”