The Future World Tour: Measuring Our Competition and Our Opportunities
I have often said if I could charter a plane, load up it up with my
readers and listeners, I’d take them to some far lands, mostly likely in
Asia. Having seen that part of the world close up many times, I’d just
want to show my farmer colleagues the world of agriculture beyond the
great white north.
As many of you know I have walked the flat farm country of
Bangladesh many, many times. I have talked with those Asian farmers
about their trials and tribulations. Asia is quite a place. With its
borders bursting with people, it represents a burgeoning growing market
for North American agricultural commodities.
Many people are trying to satisfy this market. The Asians are
doing a pretty good job themselves. When we land on the “Phil Shaw
World Agricultural Tour” some of those “Asians” would amaze you. The
marginal cost/marginal revenue efficiency model works just as well in
Bangladesh as it does in southern Ohio or southwestern Ontario.
However, the Indian sub-continent and China can’t keep it up forever.
Unbridled population and economic growth will definitely lead to
increased agricultural imports in their future.
The sky it would seem the limit. However, everything is not
necessarily what it seems in Asia. Put one North Korean nuke in the
wrong spot and you have chaos. Asia doesn’t have a history of being
peaceful. Our hopes for an endless agricultural export market just
might not materialize like many of us think.
One country that is really poised to capture that Asian market is
Australia and to a lesser extent New Zealand. The current commotion in
the wheat market has a lot to do with the Australian crop. The
following is a Dow Jones excerpt from DTN News on October 16th
concerning the disappearing Australian wheat crop.
“Production from a drought-affected Australian wheat crop likely won’t
rise above 10 million metric tons, Ingrid Richardson, grains analyst at
Rabobank Australia said Monday, a view reinforcing dire predictions of
crop size that surfaced last week.
If achieved, this would be down more than 60 percent from actual output
of 25 million tons in the last crop year ended March 31, Richardson said
by telephone from Corowa town in southern New South Wales, where she was
addressing a feed grain conference.”
That’s unbelievable. I can’t think of a better excuse for wheat
prices going way up. Australia produces about 5% of the world’s wheat.
However they are one of the major exporters of that commodity.
That’s another place I’d land the plane on the “Phil Shaw World
Agricultural Tour.” I can’t remember being in Corowa, but I certainly
have walked the fields near there. I arrived on one farm in the morning
not particularly sure of my role. I was quickly told there was a sheep
in trouble over near the grain bins. A few seconds later I lifted up an
auger, which had pinned little bow peep against the ground.
The Australian wheat production problem has really shaken up the
whole grain complex in Chicago. Last week I went through the numbers
about crop size. I also mused about high wheat prices keeping wheat
acres out of corn next year. This would have the effect of sending corn
prices into the stratosphere. A similar production problem in North
America would send those prices to levels most of us just can’t imagine.
However, is an Australian like production problem likely in a place
like the North American Corn Belt? A 60% reduction in next year’s corn
crop would put it at 6.54 billion bushels, almost preposterous to think
about in our present world of triple stacked hybrids and modern
production methods.
Having said that, it’s still important to keep that in mind. We
have not had a mind-numbing drought in North America since 1988. 2005
was close but corn hybrids respond completely differently now than they
did in 1988. It would seem that we are somewhat immune from an
Australian type production catastrophe. Conversely even a 10% decline
in the 2007 corn crop would cause unprecedented price movement next
year.
At least this is the way it seems now. Keep in mind it is a very
big world. I might have walked through the rice fields of Bangladesh or
sauntered through the wheat fields near Corowa New South Whales
Australia, but I’ve never been to the ripe plains of the some of the
states of the former Soviet Union. I’ve never been to Egypt, Algeria,
Indonesia, Iraq, Nigeria and a myriad of other places.
The bottom line is any one of those places could be on my future
world tour. Any one of those places could spawn future production
competition for North America. They could also be the source of future
opportunity. So whenever you think you have this grain/agricultural
price complex figured out, think again. Our world is big and
consistently changing. At the end of the day we must prepare to meet
these unexpected challenges.