What does the future hold for agriculture?
The next two to five years probably will prove to be just as interesting for U.S. farmers as the past five have been. Of the world's six largest economies, three have budget deficits -- Great Britain, the United States and Japan. Great Britain ha...
The next two to five years probably will prove to be just as interesting for U.S. farmers as the past five have been. Of the world's six largest economies, three have budget deficits -- Great Britain, the United States and Japan. Great Britain has the worst deficit at 14.5 percent of the gross domestic product in 2009.
Unlike last year when economies were trying to stabilize, world economies now are forecasting growth. China and India were two economies that came through 2009 fairly unscathed.
With much of the focus on China and India, the trade may be missing the growth of developing nations and the impact from that. I think that the U.S. farmer will be in the best place of the U.S. economy in the next two to five years.
Food will become the new gold market and Brazil will be the main benefactor with more land available to come into production. The U.S. farmer will share in the demand as well. Concerns will be growing demand among the world's emerging economies -- Brazil, Russia, China, India, the Middle East and North Africa -- with the inability to meet their own needs possibly posing new problems. In some of these countries, deserts are expanding and the demand for water will increase in areas where water is at a premium. Egypt and Saudi Arabia have been in the process of reducing or eliminating water-intensive crops such as wheat and barley. Egypt has come to the world market for larger-than-normal amounts of wheat.
Demand for food and energy will grow the quickest in the world's poorest countries. Young populations are vulnerable for social unrest. We are seeing more of that in Iran and Pakistan. On the supply side, this will be a problem for agriculture trying to accommodate the need. On the demand side, it will be a boon for agriculture as "an army marches on its stomach."
The next concern for agriculture is the threat of rising energy prices. Global production peaked in 2006. There is no immediate alternative to crude oil. This could lead to shortages for developed countries as developing nations demand more.
Interest rates are expected to increase in the next two years. Financing is becoming tougher as lenders are becoming more tight-fisted under more government scrutiny and new rules. Government is getting bigger and this probably won't change anytime soon.
The next concern is foreign investment in other countries for land. What happens if Brazil's sugar cane harvest were to suffer, but the Chinese or Saudi landowners or lessees are able to maintain sufficient production for exports back to them at home at the Brazilian ethanol industry's expense?
Another concern that is very realistic and that should occur in the next two years is the infrastructure improvements in Brazil and the increased ability by Brazilian farmers to more cost effectively move their crops to ports. The traditional supplier of grain from the U.S. or Europe now becomes those who were once alternative suppliers. Argentina, Brazil and the Black Sea become more competitive.
A final concern that could affect the future of agriculture and supply and demand is the return to building reserves by China, India and Russia, at the same time South America gets back on track for better production records while the U.S. farmer has expanded storage facilities filled with grain. All it will take is good weather in China and India and Russia to make a big change.