More Variables, Less Predictability

     Quite a bit is happening in the world today that challenges our ability to rationally plan for the future.  In a word or two, there are more variables to monitor and less predictability of key metrics needed to plan for and carry out investment in the pork industry world wide.

     Now that the U.S. is producing substantially more pork than domestic consumption, the need for export sales maintenance and growth has become critical to stable prices.  Unfortunately, we have few tools at our disposal to predict global events very accurately, especially in the medium term and longer.  Europe has produced far more pork than it consumes for many years but now that it has lost its key advantages in the export market (namely, reasonable cost) the FAO is predicting a substantial erosion in exports for western europe through the year 2016.  It's quite a cautionary tale about the role of government in the private sector.

     It is interesting to note that Paraguay has just announced a government intervention to restrict consolidation in the agricultural production area.  Apparently the government will be dictating what areas of the country side can produce soybeans in the coming season.  This kind of government intervention will undoubedly assure that they remain as they have for a long time, at or near the bottom of South American per capita income.  The policy is to prevent the high bean prices from driving a kind of gold rush expansion/consolidation which would send lots of rural people into the cities and thereby cause some signficant social problems.  Lots of developing countries have this problem.  Factors which drive the rural poor off of the land and into the cities are carefully monitored.  The rural people flood to cities for opportunity only to meet up with over-crowding, low sanitation, squalid living conditions and high crime.  Government management of the situation instead of adopting policies which create more opportunity will almost assuredly result in sub-optimal outcomes.

     Brazil, not exactly a hands-off government either but more aggressive on development than its nearby neighbor has produced a record crop of soybeans which will help mitigate but not totally prevent widely swinging protein costs and therefore feed costs in the coming year since there is less than 100% agreement regarding what the U.S. total corn or soybean production will be once it is all in the bin.  Lots of variables still in up in the air which could swing prices either way.

          Some countries which banned exports to preserve supplies are opening back up to the export market now that the grain crisis and food shortage problem is receding (though far from over.)  Keep this stocks-to-use notion in mind since it appears everywhere.  We are one major, well-aimed hurricane away from rapidly escalating gasoline prices and one major drought away from record breaking grain prices and more global starvation.

     Corn seems likely to get close to re-establishing its historical margins perhaps as early as next year.  Bye bye windfall profits.  We have cash rents in Illinois over $500 an acre and everyone knows what fertilizer and other crop input costs have done.