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Published December 12, 2011, 05:34 PM

‘New era in ag’? Don’t be so sure

A top CHS official, speaking at the recent Prairie Grains Conference at the Alerus Center in Grand Forks, N.D., is taking big-picture look at supply and demand

Rick Browne sometimes hears phrases such as “a new paradigm of prices” and “we’re in a new era” in U.S. agriculture.

Browne, senior vice president of grain marketing for CHS Inc., is tactfully skeptical

“This feels a little bit like a gold rush,” he says, noting that agriculture is cyclical.

Browne, senior vice president of grain marketing for CHS Inc., spoke Dec. 8 at the annual Prairie Grains Conference at the Alerus Center in Grand Forks, N.D. A record crowd of more than 700 people attended the conference, sponsored by seven North Dakota and Minnesota farm organizations.

Farmers and others involved in agriculture need to look carefully at global supply and demand, past and future, he says.

While demand continues to grow, the growth rate is tapering off, he says.

In the past 40 years, he notes, the world population has doubled. Population will continue to grow, but at a much slower rate.

“A lot of prognosticators will actually say that by 2040 or so, the world will start going back the other way (declining in population)”, he says.

Also, there’s good reason to think world food production can rise significantly going forward, he says.

Brazil and parts of the former Soviet Union are capable of farming much more land, he says.

The collapse of the former Soviet Union caused some land that once was farmed to go idle. That land will go back into use if producers gain enough confidence in the political structure to invest the necessary capital, Browne says.

World food production also would get a big boost if farmers in South America and the Black Sea region make greater use of fertilizers and have access to better seed genetics, he says.

A look at demand

In the past 15 years, global demand has been driven almost exclusively by renewable fuels and Chinese purchases of soybeans meal, he says.

“If you take those two away, honestly, it’s almost steady,” he says.

That said, a number of factors, primarily growing demand for more and better food in developing countries, is pushing up global demand, he says.

“It (global demand) is a very positive picture, no doubt about it. We see ourselves in a place where we continue to see increasing demand, particularly in developing countries. But it’s one that’s maybe tapering off from what we have seen in the past, particularly over the course of the past decade,” he says.

For instance, Chinese demand for soybeans continues to grow, though at a slower rate, he says.

But what if that growth doesn’t continue?

“Are we banking too much on that Chinese demand? Where are the caution points here,” he asks?

A slowdown in the Chinese economy would be an obvious problem, he says.

Other concerns include the aging Chinese population, which means less consumption, and the ongoing farm-to-city migration. The latter could allow China to develop bigger, more productive farms, reducing its need for imported food.

Risks to demand

Other potential risk to global demand:

n Developing countries in general could have less economic growth than anticipated, reducing their ability to buy foreign ability.

n Grain prices could rise so high that less grain is consumed.

“If we go to $25 (per bushel) wheat, I can just tell you right now there’ll be less wheat bought. That’s just the way it works,” Browne says. “People will find a way to use less when you have excessive prices.”

n Importers could switch from commodities to finished products — for instance, importing meat rather than the grain fed to livestock.

“In the end, there will still be consumption of the grains and oilseeds. The question becomes, where?”

The big-picture questions about supply and demand aren’t always pleasant to talk about, Browne says.

“It’s not fun to sit up here and put these types of concepts on the table,” he says. “But we all know it, we’re in a cyclical industry. So we have to be aware of the potential of these types of factors affecting our business.”