Big Global Changes, Big Implications for Agriculture

Global politics, economics, demographics, and weather are driving some major shifts in the global meat and livestock sector. These variables have always been a market factors. But I hesitate to say, “This time is      different”. Best to pay heed.

Policy Headwinds. Consumers with rising prosperity and declining agriculture knowledge are being easily swayed by activists and politicians. Examples include California’s Prop 12, as well as climate policies in the Netherlands,     Ireland, and New Zealand (and elsewhere). Other countries are considering bold climate policies, including Canada, the U.S. and Australia. Agree or disagree with the debate, these policies are coming and will shape the future of    agriculture with new threats and also opportunities.

Trade relations are shifting. The kumbaya attitude that launched the WTO (1995) and successive multilateral trade deals is gone, replaced by previous longstanding policies of “me first” among nations. Perhaps it was decades of     successful negotiations that mostly dismantled tariff restrictions, or Donald Trump’s rhetoric and policies. Or perhaps he just shined a light on a rising sentiment that was already rising? Regardless, there is less global trade engagement and desires for trade collaboration among nations. Even while U.S. Secretary of State Blinken met with Chinese President Xi, the most positive way they could spin the currently-weak relationship was to commit to “stabilize” it. With Taiwan at the forefront and increased military drills in in the region, don’t expect improvement in this relationship.

Global Economic Divergence: The long tail of COVID continues. Not the virus, but the combined US$17 trillion in stimulus and the ensuing global wave of inflation. Some countries over-cooked their stimulus spending (U.S. and Germany), others maybe did about right (Japan) and others did nearly nothing (China, Brazil). Now we are seeing  different responses by those economies. Central bank actions on interest rates show the divergence with the U.S. holding, EU raising, and China cutting. These moves complicate exchange rates and global trade.

Shifting global demographics are at a hinge point. For many debatable reasons, parents are having fewer children. While it varies by county, nearly all are headed in the same direction. How does a major world economy (like Japan or Italy) survive a long-term population decline? What does it do to real estate and stock markets?

Just after the year 1800, the world population passed the 1 billion mark. Over the next 223 years, nearly 7 billion people have been added, fueling staggering economic growth every step of the way. That trend is now changing and while it will take nearly 100 years for global population growth to stall, a rising list of nations are already there.

What new business model will emerge when the stark realization that we have “too much production” hits? The   lesson for Japan’s real estate market may be similar for North American pork: how do we stabilize production and stop or slow the long-term perpetual annual production growth? Or how do we link increased production to increased exports as domestic demand remains stable?

Global beef and pork production will both move into decline next year, but for opposite reasons. High   cattle prices and increased moisture will spur a 3-year expansion which results in less beef. Low hog prices (with a futures curve offering slim-to-zero profits for the next 12 months) are spurring financial liquidation. For how long? Do “high prices fix high prices” and vice versa. European hog production has failed to expand on record hog prices due to heavy energy, feed, labor, and equipment inflation as well as heavy anti-livestock policies. After 20 years of annual beef, pork and poultry production averaging 5.0 mmt annual growth; the next 10 year forecast by FAO is 3.8 mmt per year. My forecasts are even lower.  – Brett Stuart