Going Green

Saturday, December 29, 2007

A Look Back And A Look Forward

The big news in agriculture for 2007 was the “tsunami” impact of ethanol. It affected everything from planting decisions to fuel prices to the cost of feeding livestock to food prices in the supermarket. It shook commodity markets from China to the United States – and so far, we’ve only seen the leading edge.

What will we see in 2008? I think we will see farmers continuing to shift acreage toward corn. It will be increasingly difficult to hold CRP acreage in the program and many contracts will not be renewed. The competition for corn will continue to create problems for the livestock feeding industry. The demand for bio-fuel crops will affect reserve stocks and planted acreages of all grain crops.

The high cost of feeding cattle is affecting the timing of when those cattle come to the feed lots and therefore to the packer. Where possible, the calf crop will be held on grass to put as much gain on them as is practical before shifting them to the higher cost finishing rations. Wheat pasture will be scarce again. World wheat supplies are low and the competition for acres is high. High wheat prices will mean that fewer acres are available for grazing.

There will likely be a greater regional disparity in cattle prices. This price disparity will be a function of availability of grazing, proximity to feedlots with ethanol co-products to feed, and transportation costs. Such things have always affected cattle prices, but the ethanol co-products is a fairly new factor and transportation prices are an even bigger factor than they have been historically.

Whether you believe that “global warming” is caused by human activity or by natural cyclical phenomena doesn’t matter, weather patterns seem to be shifting. Drought, flood, hurricanes and other weather-related factors will likely be in the headlines on a more frequent basis. Weather is always a factor in agricultural production. If indeed the weather patterns are shifting, the impact to agriculture could be devastating in some areas and beneficial in others.

Related to weather is water. Water will become the number one global issue in the coming years. Drought affects water availability. In the Southeast and on the West Coast, 2007 has been a year for drought. The snowpack in the Rockies is low which means less water in the rivers and streams that feed many reservoirs. In the irrigated areas of the country such as the High Plains, corn production, the influx of dairies, ethanol plants and growing population centers will put increasing pressure on the Ogallala Aquifer, further depleting our underground water resource. Add to that the increasing demand of population centers such as Dallas for new water supplies and the initiative of some individuals and groups to supply that demand from the Ogallala and you have even greater pressure on water for irrigation.

The growing world population – especially in China and India – will further impact the world agriculture situation. Not only are the populations of those countries growing, but their economies are growing even more quickly. It will mean more dollars available for expenditure by the people of those countries. Some of that money will be spent on higher quality foods such as protein rather than rice. The growing economies will also increase demand for fuel which will place further pressure on global fuel prices. Fuel prices impact ethanol which impacts U.S. agriculture. Hopefully, it will also favorably impact our agriculture export markets.

It is certain that 2008 will be a year of excitement and turmoil for agriculture. We must respond to a changing role in the world economy. Continuing to do business the same way we have historically is a sure formula for failure. Agriculture is quickly moving to the center of focus for the world. We must respond as the leaders that we are and prepare for that new role.

No comments: