Determining the megatrends for agriculture is a difficult task. What looks like a "megatrend" one month may be much less important just a few months later. But by definition, a "megatrend" is one where the underlying forces are structural change and not just cyclical change. They persist over a period of years and withstand significant changes in global politics or even the general global economy.
As Doane's Washington editor and chief economist, I've had requests to list what I would choose as the "top 10" megatrends in agriculture today, and here are the ones I believe will persist despite the volatility, uncertainty and "wildcards" shaping agriculture's future. If any of you would like to challenge or add anything to this list, I'm always open to feedback and constructive critique. My e-mail is firstname.lastname@example.org.
As I see them today:
- The tight balance between world crop production and use, even in years of normal global yields.
- Particularly strong growth in demand for corn, soybeans and broilers.
- China's enormous and growing soybean deficit.
- Slowing growth in demand for corn for ethanol.
- Rising grain production and exports from the former Soviet Union countries.
- Increases in world crop area as high prices bring more development in South America and more marginal ground elsewhere into production.
- Advances in seed technology that raise yields even under stressful conditions.
- Soaring land values on combination of strong commodity prices and land's traditional role as a "store of value" that governments cannot simply "print more of."
- Water availability in key producing countries dependent on irrigation when population pressures compete with agriculture.
- The U.S. growing dependence on fertilizer imports as competitive pressures shut down U.S. productive capacity.
We should probably include climate change as a megatrend — or a least a Mega "factor" for the future, but it is unclear how to measure its impact on agriculture per se, and it is subject to huge debate (and even some scandal) among climatologists themselves.
World meat consumption is rising rapidly. That's what is driving rising export demand for feed grains and protein meal. All that varies is the rate of growth among commodities. Looking just at U.S. data for the past decade, it breaks down like this:
- Strong growth in demand for soybeans, corn and broilers.
- Modest increases for pork, milk and cotton.
- Slow growth in demand for rice, wheat and other grains.
Looking just at growth outside the U.S., soybean consumption is up nearly 70 percent in the last decade. That’s the strongest growth rate of any commodity. Broiler demand outside the U.S. has soared 45 percent higher since 2000. (U.S. poultry consumption is actually a drag on demand growth globally; counting U.S. consumption, global broiler demand is up "only" 39 percent.) In fact, global broiler demand is rising much faster than demand for beef or pork, most likely because poultry has a better feed conversion ratio and has near universal cultural acceptance and appeal. Global corn demand is up strongly, even without the increase in demand for ethanol production in the U.S.!
Digging further into the numbers, broiler consumption in India has more than doubled from 1 million metric tons in 2000 to a forecast of more than 2.6 million metric tons in 2010. Other countries showing big gains in consumption include Ukraine, Kazakhstan, Iraq, Azerbaijan, Ghana and Angola.
From more on the crops side, world soybean consumption (including the U.S.) has increased by more than 48 percent over the past decade, compared to a 37 percent increase for corn, 14 percent for rice and 13 percent for wheat.
Big gains in the U.S. have boosted world corn consumption. Over the decade, U.S. corn consumption has increased by 47 percent with a lot of the gain fueled by the growth in the ethanol industry. But even if we exclude the U.S. from the calculation, foreign corn consumption increased by 32 percent from 2000 to 2010.
Consumption of soybeans outside the U.S. has increased by nearly 69 percent since 2000, with the gains in China as the key factor.
Overall, the data shows clear increases in per capita consumption of corn, soybeans, broilers and sunflowers; modest increases for pork, fluid milk and cotton; but only steady to declining per capita consumption of rice, wheat, sorghum, barley and oats.
If these trends continue, we will continue to need to see increases in world acreage devoted to livestock feeds, especially feed grains and high protein meals while yield gains alone may be enough for production of other grains to keep pace with projected demand growth.
The tight balance between world production and use was highlighted by developments this summer. Over the past three years, world grain production had exceeded use and the rising stock levels gave us a sense of security. But the drop in foreign wheat production in 2010 demonstrated clearly that we aren't that far away from tight supplies and high prices. World wheat stocks will decline by 23 million metric tons this year, but still be the second highest since 2001/02.
However, if world wheat production in 2011 happened to be no higher in 2011 than it was this year, world ending stocks could fall to around 142 million metric tons with a stocks-to-use ratio very near the low of 2007/08 that led to astronomical prices. Coarse grain stocks also took a big hit in 2010/11 down almost 40 million metric tons and more than half of the decline in the U.S. alone. Back-to-back crop production problems would clearly cause at least serious concern in world markets.
CORN PRODUCTION CAUTION
But now a word of caution for corn prices: I've detailed the very strong growth in global demand for corn, soybeans and broilers. However, the leap in corn demand is at least partly due to the rapid increases in ethanol production in the U.S., which relates to megatrend No. 4 on my list.
Currently we are producing nearly 13 billion gallons (at an annual rate) of ethanol. The Renewable Fuels standard will require the use of 15 billion gallons by 2015. Unless the economics relative to fossil fuels dictate blending more ethanol than is required, we need to increase ethanol production by only another 15 percent over the next four years, and beyond 2015, we may see little or no growth in corn-based ethanol production. That will be quite a change from the growth in corn demand we have become accustomed to over the past decade. And if fossil fuel prices would happen to weaken and produce a significant decline in U.S. corn demand for ethanol by 2015, such a decline could come at a bad time.
All major seed companies are making strides toward boosting corn yields significantly, with most of the big gains expected to come on line after 2015. Seed companies say they will be able to double corn yields by 2030. In addition, drought-tolerant corn is expected to become available over the next few years. Such a development could significantly increase corn acreage in areas with lower rainfall. It is possible that we could see big increases in corn production just as domestic demand levels off. That would not be a good development for the agriculture sector outside of livestock producers, who would no doubt welcome lower feed costs.
Even though there’s a lingering attitude, fed by soaring U.S. land values, that the planet has little land left to develop for farming, we have added 50 million hectares (123 million acres) to world grain, soybean and cotton area since 2000, and Brazil in particular is rapidly developing the transportation and logistics infrastructure needed to tap vast acreage still in scrub brush but potentially productive. These changes in world major crop area combined with steady yield improvement through seed technology will go far in meeting growing demand for improved diets.
Overall the outlook for the crop sector is still quite bullish for next year and probably into 2012. We could see a tilt toward higher supplies beyond 2012, but a lot can happen over the next two years. Developments in agriculture have a way of surprising everyone.