December 30, 2015

DrKohl_color The Ag Globe Trotter

Dr. Dave M. Kohl

Welcome to the weekly edition of The Ag Globe Trotter by Dr. Dave Kohl.

The first 15 years of the 21st century are in the history books. In this time period, many catalysts for change, along with various twists and turns, created an economic environment full of surprises for agriculture. In ten years, a quarter of this century will be gone. For continued success, it is important to discuss future direction based on the past and examine those issues in front of agricultural strategists.

When history books summarize and highlight the first 15 years of the 21st century, the great commodity super cycle will likely be one of the events retold. The cycle was great in terms of magnitude and duration, especially, when compared to the previous three cycles, last century. The emerging nations’ appetite for commodities increased, which, of course, impacted numerous commodities ranging from corn to oil to steel. Building infrastructure to feed the needs of growing populations, the emerging nations played a significant role in unprecedented profits in the agriculture industry and rural America. Today, the economies of the emerging nations represent approximately one-quarter of the world economy. As one envisions the next decade, the emerging nations, also known as the BRICS KIMT (Brazil, Russia, India, China, South Korea, Indonesia, Mexico and Turkey), will most likely moderate in growth of infrastructure and income levels. In actuality, the intensity of demand increases benefited not only the U.S. but any commodity producing region or nation including, Canada, Australia, and South Africa.

Another significant catalyst for change was alternative energy. Biofuels, wind power, solar and other were sources of energy that were designed to displace or even phase out fossil fuels. In 1998, eight percent of the U.S. corn crop was used for biofuels. Today, U.S. corn supplies approximately one-third of the stocks used for biofuel production. There is still much debate on the economics of government energy mandates; however, some rural areas were strategically positioned to benefit because of efficient ethanol and biofuel plants in close proximity to livestock concentrations. In these areas, the government policies were extremely beneficial. The next decade is uncertain as the industry matures and technology opens the way for other sources of alternative energy and fossil fuels around the globe.

Since the turn of the century, two events, in particular, produced lasting and profound impacts; 9/11 and the great economic recession. The deepest since the 1930s Great Depression, the recent recession had less impact on agriculture and rural economics because of their ties to the emerging nations. However, it had a big impact on the remaining population directly, which of course, was felt in agriculture indirectly.

After the tragedy of September 11, 2001, one of the many actions of homeland security was to heighten bio-security on the agriculture industry. This measure, in addition to the threat of further terrorist action, enhanced the sense of strategic importance inside the agriculture industry. The need for basic food, feed, fiber and fuel is undeniable. Now, with traceability and identity attributes for a public seeking transparency.

Among several other areas, the great recession devastated the housing industry to the point of near collapse. While not directly tied, this industry’s crisis impacted agriculture and rural areas that had considerable land in transition for development. Impacted areas included Florida, Nevada, Arizona and Southern California. The forestry industry felt the impact of reduced housing starts, as well as agricultural sectors including, horticulture, landscaping and nurseries.

Additionally, the Federal Reserve action was designed to stimulate the economy, directly impacted agriculture. This included the quantitative easing or buybacks by the Federal Reserve totaling $4.5 trillion. This strategy devalued the dollar and maintained unusually low interest rates for an extended period of time, 2008 to 2015. This, in turn, inflated land values for investors as a result of few attractive alternative investments. The low value of the dollar, for an extended period, enhanced export potential to emerging nations, which served as a significant catalyst for record profits and wealth in the agricultural sectors.

Moving forward, European and Asian central banks are utilizing a similar strategy. As a result of their economic stimulus, the dollar is stronger which inhibits export potential. The possibility of rising interest rates only compounds the duration of the strength of the dollar which could deter export potential for those commodities dependent on global markets.

Another major trend emerging in the early part of the new century is the convergence of a biotechnology, advances in engineering, and inclusion of information or “big data.” Still in its infancy, this trend will alter agriculture here and abroad over the next 10 years. Linking trait-specific attributes in crops, livestock, and vegetables to selected consumers will become the normal standard as agriculture industry moves toward 2025. The use of robotics, engineering, and enhanced equipment will be utilized in selected industries with labor issues. In turn, this will demand talented workers and managers, likely millennials, that understand technology and innovation are the competitive edge.

Continuing to look ahead, advances in applications of weather and climate change will optimize use of inputs on our natural resources. Issues such as land applications, water availability and quality, and air quality will demand increasing attention from the agricultural industry. Through the pairing of agronomics and weather, technology will deliver efficiencies to the industry only dreamed about fifteen years ago.

Since the turn of the century, there has been a significant increase in the demand for local, natural, and organic products in the consumer marketplace. Last century, many said this was just a fad in developed areas of the world and that production and distribution techniques would not support long-term survival. Now, the debate for the next decade will be between the emerging markets and products with technology, such as genetically modified organisms (GMO). Enhanced technology is necessary to meet growing global food demand as well as to help increase efficiency and preserve natural resources like water. Nevertheless, this debate will indeed be a challenge for stakeholders from the gate to the plate. With more urban centric populations, and less political support especially from those with urban constituencies, the agriculture industry must stay engaged and interactive with all market potentials and policy makers.

Finally, the prosperity of agriculture in the early part of century was like a magnet attracting young and diverse talents to the industry. Members of generation X and the millennials will be the drivers in the coming decades whether it is in the workforce, social, consumer, or political trends, or as owners of rural businesses. The challenge for each and every agricultural strategist will be how to integrate these generations into a business workforce transition. The next generation of agriculture will include more outside the box thinkers including, women and minorities. This change will bring new energy to the agriculture industry, which remains the foundation and fabric of a stable, productive society.

The first 15 years of the 21st century set a tremendous platform for the next 10. The agriculture industry will see capabilities that are now dreams become reality. Whether it is global trade risk, government policies, markets, consumer shifts, catastrophic events, weather, technology or numerous others, change will always be a part of the agriculture industry. Keep looking forward with strategies for the future. Remember, sound business principles and personal lifestyle will be the foundations of success.