What's On The Horizon For Agriculture in 2012?
January 19, 2012
One of the most frequent questions I hear from readers this time of year is: What threats and opportunities do you see on the horizon? After chronicling droughts, flood, global economic turmoil and then the ups and downs associated with writing a new farm bill package in a hyper-partisan Congress in 2011, it's hard to believe that 2012 won't offer some new glimmers of hope.
Indeed, there continues to be a lot of optimism about the profit potential in agriculture. Yet, in talking to almost 20 different market and policy experts about what they see in their crystal balls for 2012, continued uncertainty and the need for strong risk management tools seems to be a common thread. Concerns about rising input costs were a common threat.
With more than 95 percent of U.S. agriculture's customers outside of the continental U.S., opening new and maintaining existing export relationships was the most commonly cited opportunity for continued growth and prosperity.
"It is hard to remember the start of a new year in which there are so many uncertainties and potential flash points surrounding the broad economic outlook for the year ahead," noted one agricultural leader who wished to remain anonymous in order to speak more freely.
"One can quickly tick off a list including the Iran nuclear situation, North Korea in political transition, a restive Russia, a far-from-unfinished North Africa/Middle East political situation, EU sovereign debt/financial system seizure, U.S. debt/political paralysis, China economic model transformation, military or financial system cyber attack, and the always-present 'X Factor,' or unexpected 'unknown unknown,' among others. And, in today's highly interconnected global economy, a significant erosion in any one of these would significantly and adversely affect the global economy and consequently the demand for commodities.
"Even with all of the uncertainty and the greatly reduced cushion for meaningful governmental response through economic policy the new year promises to be another favorable one for global agriculture, barring a major adverse event," he said. "The near-term fundamentals still are strong for global agriculture most notably, economic growth continues relatively strong in the emerging market countries, the major driver of the ag commodity markets," he added.
Dan Basse, president of AgResource, a domestic and international agricultural advisory and research firm, says his team believes that the weather could continue to be one of the major challenges for U.S. and international agriculture in the year ahead.
"Our analysis argues that like the 1950s and to a lesser degree the 1930s, Plains and Midwest producers could be facing consecutive years of soil moisture shortages amid less than normal weather conditions. 2012 would mark the third consecutive year in which U.S. crops face adverse weather challenges," Basse said, citing La NiÃ±a combined with dramatically rising solar activity that point to unfavorable weather conditions for another central U.S. cropping cycle. Erratic weather due to expanded volcanic activity and the prevailing La NiÃ±a and fluctuations in Pacific equatorial water temperatures will also impact producers around the globe. Basse says Argentine corn and soy crop losses are likely to approach 20 to 25 percent with Brazilian crop losses at 5 to 10 percent.
John Ryan, president and CEO of Rabo AgriFinance, says the economics of U.S. agriculture is tied to what happens around the globe more than ever. From production risk in the Black Seas Region to the European debt crisis, U.S. agriculture and U.S. producers face conditions ripe for continued and potentially escalating volatility, not only in commodity prices but in input costs.
And, says Ryan, 2012 global grain demand will be very much influenced by the degree developed economies certainly the United States are increasingly impacted by macro events such as the European Debt Crisis, though some of that volatility may be balanced by growth in developing economies, particularly China. However, uncertain, though strengthening conditions in export regions such as the Black Seas will greatly determine availability of grain supplies and, therefore, prices. He cited as an example the recent poor emergence in the Ukrainian winter wheat crop, which has made price-sensitive importing countries such as Egypt very nervous. "While many things could happen, there is little room for reduced harvests given the challenges of the past three years," Ryan said.
Former Secretary of Agriculture and U.S. Trade Ambassador Clayton Yeutter says, "For the immediate future at least, there's plenty of room for everybody" on ag exports. Yeutter says the United States needs to export aggressively in order to gain and hold market share in all major importing nations, with China being the first priority. But he also sees plenty of competition ahead, with more production and export competition from places like Brazil, Argentina, Russia and Ukraine.
Alan Tracy, president of U.S. Wheat Associates and a self-described "optimist," is also bullish on prospects for U.S. agricultural exports, but expects the path could be bumpy. "We are in our first global demand expansion phase since post WWII and it is hard to predict where it will go," he suggests, citing uncertainty over whether or not the Chinese economy will suffer a setback, or their demand for pork and poultry will keep soaring and take our grain prices along for the ride.
For wheat and barley, Tracy expects "an interesting challenge in adjusting to the long-awaited demise of the Canadian Wheat Board monopoly. I believe the market adjustments will come quickly and that we will soon integrate into a single North American grain market, but there may be some bumps," noting his group is eyeing Canada's variety registration and other technical issues that will affect how wheat moves across the mutual border.
One of the biggest international opportunities for U.S. Agriculture in 2012 has to do with "capturing incremental value for agriculture product exports through further development and execution of free trade agreements," says Forrest Roberts, CEO of the National Cattlemen's Beef Association. "Capitalizing on our momentum from 2011 will help pave the way for future trade deals with key international trading partners. The acceptance of scientific-based, international standards for fair trade will be a critical success factor!" he emphasizes.
National Milk Producers Federation CEO Jerry Kozak says one of the biggest international challenges as well as opportunities for U.S. farmers in 2012 is "continuing to grow our ability to reach international consumers with our exported food products, while doing our best to negate the accompanying volatility that global markets create due to sudden changes in supply, demand, currency valuations, and trade barriers."
It won't be an easy task. With U.S. domestic demand for milk, pork, and beef in decline, AgResource's Basse says livestock and dairy prices will largely be determined by U.S. export demand for their products. "Livestock markets will become much more volatile as a result of uncertain world trade on a quarter to quarter basis," he adds.
Jim Borel, executive vice president for DuPont, questions whether or not the U.S. is investing in future customers like Africa and South and Southeast Asia to take advantage of future trading opportunities. "Africa will need to increase ag productivity in order to have the economic development to afford the additional grain they will need to feed the extra billion people that are coming as well as the billion that today are undernourished," Borel said, adding that "We have the opportunity to develop future paying customers by finding new approaches to international ag development, food aid, and ag research."
But making new investments is usually an uphill battle, especially given continued pressure to cut the U.S. deficit, and with it, the ups and downs of trying to write a new farm bill during a presidential election year.
"We must educate the public and decision-makers of the importance of federal investment in agriculture," says National Farmers Union President Roger Johnson. "Consumers increasingly desire to buy food from family farmers--who can be trusted to produce food responsibly--and without well-crafted farm policy, it will be difficult for those farmers to stay in business."
Yeutter says the biggest domestic challenge this year will be for the U.S. agriculture industries that have traditionally depended most on taxpayer support, noting that, post 2012, "they'll likely have to live with a much lower taxpayer contribution to net income."
Former Secretary Dan Glickman says the biggest domestic challenge, and opportunity, for agriculture in 2012 is "overcoming the partisanship and divisions currently so endemic in our American political system that makes it nearly impossible to resolve very many issues that Congress is facing, including the next farm bill."
"The challenge is for Congress and the Executive Branch to overcome these election year battles and work on farm policy in the best interests of the American farmer and the American consumer, and not merely to pass the buck to future years and for future Congresses to deal with," Glickman emphasizes.
- Source: Sara Wyant, HP Journal
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