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A Time To Reap Global Rewards


Industry Outlook -- Basic Industries: AGRICULTURE

A TIME TO REAP GLOBAL REWARDS

With demand and output growing, the U.S. could again dominate world markets

Corn and soybean farmer Robert Mullins doesn't get excited too easily. But from where he sits on an 1,800-acre spread in rural Shabbona, Ill., the export outlook is cause for celebration: "Spectacular," he says. "It's really coming alive."

The next year could bring an export bonanza for Mullins and other farmers, as U.S. agriculture begins dominating world markets again. The U.S. share of agricultural trade will rise to about 21% in 1996 after falling as low as 16.7% in 1986. The value of U.S. exports will push up to nearly $60 billion (chart), thanks to booming demand, reduced global trade barriers, and a more competitive U.S. Farm Belt. U.S. farmers have long considered exports the missing link in their pursuit of higher prices: "If Mother Nature cooperates, and we get a good crop, we could have the full package for a change," says Mullins.

In 1995, Mother Nature had other ideas. Heavy rains delayed spring planting through much of the Midwest grain belt. Two months later, a summer heat wave baked the earth rock hard. Then a killing frost in late September put a chill on the autumn harvest. With the crop stunted and plagued by disease, production of corn plunged from 10 billion bushels in 1994 to 7.3 billion in '95, sending U.S. corn stockpiles to 20-year lows. For the year, corn futures prices had soared 51% as of Dec. 14, soybeans 31%, and wheat 25%. Big rewards went to farmers who produced decent crops in spite of the weather, then held out for the best prices late in the year. But predicting such explosive rallies can be tricky: "With our reserves of feed grains at historic lows, it makes the markets more volatile," says Patrick H. Arbor, chairman of the Chicago Board of Trade.

SHRINKING SET-ASIDES. Still, the near-term trend is positive: Supplies have tightened at a time of heavy demand, especially from Asia. Spending by the Japanese, the largest importers of U.S. agricultural products, will reach $11.3 billion in 1996, up from $10.5 billion in 1995, according to projections from the U.S. Agriculture Dept. South Korea and China, benefiting from robust economies, will increase imports as well. U.S. red meat, fruit, and vegetables, along with grain, will be sought-after commodities. "We have tremendous export-market potential," says analyst David C. Nelson of NatWest Securities Corp. in New York.

U.S. farmers will be planting fence post to fence post this year. As of mid-December, the government appeared to be all for it: Proposed reforms would eliminate annual set-aside programs that support prices by idling cropland. Instead of paying farmers not to farm, the government would provide fixed payments, shrinking each year, based on how much they received in the past. With this change, the amount of corn, wheat, and soybean acreage in production should jump by about 10% in the coming season, analysts estimate. As the reforms stood at the end of '95, they would have little effect on cotton, rice, sugar, peanut, and dairy farmers, who would retain key subsidies.

The additional land for grain crops will be a modest plus for fertilizer companies such as IMC Global, Freeport-McMoRan, and Potash. But the biggest potential for those companies lies overseas. In China, for example, average grain yields run about 50% behind those of the U.S. Yet rapid economic growth has the huge Chinese population clamoring for a better diet. The simplest way to boost yields: more fertilizer. The less developed world will be pouring on the potash, says Wendell F. Bueche, chief executive officer of IMC. "There's nothing more dangerous than hungry people. You've got to keep your population well-fed," he says.

Other nations' efforts to improve farming techniques won't threaten U.S. market share right away. Greater use of fertilizer, pesticide, and hybrid seed, as well as increased mechanization, could level the playing field someday. But the U.S. retains a big advantage in low-cost production. And the demand is huge. China's consumption is projected to grow even faster than its yields. And the former Soviet Union--a potentially huge competitor--has seen its output crash along with the rest of its economy over the past five years, with no comeback in sight.

Even if the U.S. produces a bumper crop in 1996, many bins will remain empty: "We're not going to be flush with supply for at least several growing seasons," predicts Daniel W. Basse of the AgResource consultancy in Chicago. For the rest of this decade, the world will be depending on U.S. farmers.By Greg Burns in ChicagoReturn to top


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