Remarks of
Daniel G. Amstutz
President/CEO
North American Export Grain Association, Inc.
at the
GIPSA Millennium Conference
Kansas City, Missouri

 

One way or another I have been in the grain export business nearly 46 years. During that time I have learned much. Let me share just three of those things with you today.

  1. World consumption has been steadily increasing and it will increase at more rapid rates in the years ahead. An anecdotal observation proves the point. Several weeks ago I discovered a market letter I wrote 25 years ago. In it I mentioned that 1975/76 world wheat production and consumption were each about 350 million tonnes. Today, 25 years later, they are about 600 million tonnes. An increase of more than 70% in one generation. In the same report I listed Chinese wheat consumption at 43 million tonnes. Today it is 117 million - a 170% increase in one generation. Growth in consumption has not been unique to wheat. It is evident throughout the grains/oilseed complex.
  2. Market prices are cyclical. While consumption during any year can be rather easily estimated and tends to be inelastic, production can fluctuate more widely and, of course, during periods of relative supply tightness prices are stronger than would otherwise be the case, and vice versa. An old maxim of the grain trade is that there is no such thing as a "little too little" and no such thing as a "little too much". Because of the reality of the cycles and the fact they impact value considerably more than volume, professionals usually report statistics in volume terms, regardless of whether the time frame is one year or a series of years. Now, if someone wants to brag about something or complain about something, the value data may better serve the spokesperson's interests at any given time.
  3. The U.S. can (and does) produce more, each year, than it can consume, sell for export or give away. Of course there have been years of exception but in a real and statistical sense they are anomalies.

Every year global consumption (or disappearance) is less than demand. Demand is that which would be consumed if supplies were available and/or consumers could afford to buy as much as they would like. Clearly, American agriculture needs a world economic environment where growth in markets ensues at a more rapid rate than is currently the case, permitting consumption to grow more rapidly. Fortunately, despite the debacle at the WTO Ministerial in Seattle, multinational agriculture negotiations under the auspices of the WTO are beginning. The nations of the WTO have another opportunity to address the issue of market expansion.

In the context of the subject of this section of the program, I think the principal force that will shape production and marketing decisions in the future will be demand, more rapid growth in global consumption (demand) than at present.

Market expansion can be expedited if the U.S. and other WTO negotiators advocate those objectives that will truly liberalize trade:

Few in the world will question that the U.S. is the most reliable source of supply. But because of our penchant for imposing unilateral economic sanctions, we are not regarded as reliable suppliers. The Congress and Administration have been addressing this issue but actions to date and those contemplated only partially address the issue. A bold move by the U.S., asking the world to join it in eliminating this form of economic warfare, could remove the "unreliable supplier" stigma with which American agriculture is saddled and would solve the world food security problem.

Of course there are other important points that must be covered in multilateral agriculture negotiations.

Global markets for farm products can grow dramatically in the near future. For instance, annual trade for wheat should reach the 150 million tonne level early in the 21st century. Currently it is running about 100 million tonnes. It is a conservative estimate to say that the U.S. share of this wheat trade can be two billion bushels. That is about twice our current export levels and the increase is nearly half current U.S. production. But this will happen only if more wealth is generated in more countries more rapidly than is currently occurring. It is only through real trade liberalization that this more rapid expansion of the global market will result.

Let's be optimists and assume that positive, trade liberalizing results will be forthcoming from the WTO negotiations and that U.S. agriculture will enjoy ever-growing demand in the years ahead. How will this affect markets? And how can farmers compete advantageously in this environment?

Market volatility will continue, there is no question in my mind about this. Because of the electronic revolution there is continually more information (about markets) available to more people and more of these people have sufficient capital to act on it. More players in the market with more capital and more information results in volatility, particularly when one realizes that the volume of information has nothing to do with the quality of it. Because of this I think farmers are going to have to develop better skills of analyzing markets. They cannot rely totally on others to do it for them and they must remember that over-simplified quantitative analyses can be dangerous. Don't forget the value of qualitative (fundamental) analysis. Another maxim from the grain trade: the fundamentals are always correct (market determiners) in the long run.

Fortunately for farmers, a variety of flexible contracting methods for selling their products are and will be available, as will various risk management approaches. Study each of these, ask questions and satisfy yourself that you understand the merits (and shortcomings) of the actions available to you before committing yourself. A risk management program that does not provide risk assessment is of little value, for instance. Remember, you cannot simultaneously protect yourself against declining and rising prices.

American farmers tend to be excellent farming and production managers. To be successful they must also become better business managers. A recent study by the USDA, published in the May issue of the Agricultural Outlook magazine, concludes that there is a wide range of business management skills among farmers. There are leaders on Capitol Hill who think the data is clear that it has not been low prices but poor business management practices that have caused most of the failures of farmers in recent years. And I agree with them. Throwing out money in the form of supplemental appropriations in low price periods really does not solve the problem.

Farm organizations, land grant universities with their ag extension services, federal and state governments and non-fanning elements of the agriculture industry have really not done much to address this need. If only a fraction of the attention given production agriculture over the years was now devoted to business management education for farmers, we would have a far more viable farming sector, I am confident. What an interesting E-commerce project it could be. I hope someone sees that and recognizes it as an opportunity.

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