Rising to the Challenge

This year's pandemic disrupted business models and buying habits and has been a challenge. However, companies will rise to meet the challenge and can turn it into an opportunity to come out stronger and better, according to Ken Eriksen.

Eriksen is IHS Markit senior vice president, head of client advisory and development, energy and transportation and policy, and has a background as an agricultural statistician with the USDA's National Agricultural Statistics Service. He will be speaking at the virtual DTN Ag Summit taking place Dec. 7-9.

"This may sound like a 'duh' statement, but at the end of the day, everyone has to eat. There will always be opportunities for American farmers," Eriksen said. "However, in a world where population concentrations are spread out and diverse and arable land is not readily available in some areas, the duh statement becomes more complex," he said.

"When we think about getting people the necessary calories and protein, it can be a challenge in the face of a pandemic. Surge buying out of fear initially drew food supplies down. But we have seen a resiliency of that system to come back."

For example, Eriksen said hog slaughter wasn't expected to catch up with the backlog for months. However, by mid-August, it had.

"When there's a challenge to be met, people rise up to meet it."

VERTICAL INTEGRATION

Eriksen said vertical integration within agriculture will continue.

"Big consumer package food companies buy a lot of ingredients. But, will they go backward and get closer to the farm? Costco, a big-box operator, got into growing and slaughtering chickens. It is running at capacity ahead of schedule.

"What's interesting is what one short, six-month pandemic did to disrupt business models so dramatically. It's painful for those disrupted, but they can come out strong and better going forward," Eriksen said.

THOUGHTS ON EXPORTS

With African swine fever and COVID-19, there's a lot of change going on in China and Southeast Asia concerning how livestock is raised and where people buy food, Eriksen said.

He added there's a shift toward larger, integrated farms and urban cold storage integration for chilled and frozen meat. "People used to go to the wet market daily; that has been turned upside-down."

Now, companies have set up integrated hog farms and compound feed operations. On the backside, there are slaughter plants and retail stores, he explained.

"The flow of corn and soybeans needs to be steady. China needs feed and needs it yesterday, and right now we're sending it as fast as we can.

"For 2021 and 2022, we see record grain and soybean exports out of the United States. There are opportunities for protein exports for pork and also beef to a certain degree.

In Indonesia, tempeh is still a strong part of the diet, and that requires soybeans. The dairy market will continue to struggle until food service recovers. We see good demand for crushing businesses for oil and flour, but we don't foresee growth in ethanol in the short or medium run," Eriksen said.

COMPETITION HEATS UP

South America has been awakened, he said. "Price incentives exist to compel the country to produce more soybeans, corn and livestock. The U.S.-China trade situation has helped.

So, there's competition for U.S. farmers ahead, but they should still have opportunities in soybeans and corn," Eriksen said.

"However, the competition is catching up, and fast. The U.S. has invested some in its infrastructure to move exports, such as dredging the lower Mississippi River and repairing locks and dams. U.S. farmers have to stay committed to infrastructure being improved."

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Editor's Note:

To hear the full presentation by Gordon, register for the virtual DTN Ag Summit at www.DTN.com/agsummit20. Ken Eriksen and IHS Markit colleague Paul Hughes will discuss their trade and economic outlook at 8:05 a.m. CST on Monday, Dec. 7.

Registering for Ag Summit will allow you to hear these and many other presentations live or log on later to catch the recordings. Your registration will allow you to access the full Summit content through Jan. 8, so you'll have plenty of time to catch sessions you may have missed or to review sessions you wanted to listen to again.

Matthew Wilde can be reached at Matthew.Wilde@dtn.com

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