Pockets of promise emerging in agriculture industry, according to new Rabobank podcast
Last year's commodity boom altered farmers' outlook on the market place, but today farmers are beginning to see some pockets of promise, according to a new Rabobank podcast.
In the podcast, Rabobank Food & Agribusiness Research and Advisory analysts note that farmers haven't escaped the recession unscathed, which altered their view of the industry. However, they also are beginning to see some signs of recovery, which have been termed 'green shoots.' (The full podcast is available online at www.rabobankamerica.com/rabocast.)
"The biggest impact (of the commodity boom) is that farmers are looking at the world differently," said FAR Executive Director Karol Aure-Flynn. "We emerged ... much more savvy, and understand the number and the complexity of factors that contribute to the overall wellbeing of the agricultural industry."
Moving past the boom, Aure-Flynn said the 'green shoot' growing in the grains and oilseeds market is demand. Soybean exports to China and Indian edible oil demand illustrate that "fundamentals will always be the basic drivers ... population growth, per capita gross domestic product, and urbanization are still driving overall demand growth."
Additionally, according to FAR Assistant Vice President Erin FitzPatrick, "in a highly competitive environment, farmers still have access to credit that they need to buy their inputs, which is putting the U.S. ag industry as a whole at a little bit of an advantage through this credit crisis."
These pockets of optimism coupled with lessons learned after the "wild ride" of the commodity boom illustrate that with "supply concerns and planting issues ... now alleviated, this is the time for being disciplined about your marketing and remembering that revenues are only half of the equation," said Aure-Flynn.
"What you get for your crop only makes sense when you look at how much it costs to grow that crop," said FitzPatrick.
While input costs are down, they have not fallen as far as revenues. For example, last year's high fertilizer costs transformed what was typically inelastic demand into elastic demand when farmers reduced their application rates--rather than pay higher costs.
Going forward, "what happened in the markets in 2008 is not going to be forgotten quickly by farmers, and the focus on fertilizer efficiency is going to be a continued theme throughout the next few years and really into the future," said FitzPatrick.
While fertilizer efficiency will be one theme moving forward, additional factors will also come into play as industry 'green shoots' take root. With farmers looking at the world differently, it's key to remember that fundamentals--supply issues and demand drivers like population growth and urbanization--will define agriculture's role as economic recovery begins to take hold.