From WIA Summit 2020: SWOT’s going on with trade these days?
By Michelle Pelletier Marshall, Women in Agribusiness (September 29, 2020)
We hope you joined us earlier this month for our 9th annual Women in Agribusiness Summit, where we welcomed nearly 700 attendees, but in case you missed it, below is another takeaway (see the first one here). In today's post, we highlight the session "SWOT’s Going on With Trade These Days?" by author Elaine Kub, also an economist for DTN and Progressive Farmer, who provides insight on what’s going on with ag trade, while drawing on her experience as a commodity and market analyst, investment consultant, grain merchandiser, and the operator of her family grain and livestock business in South Dakota.
Kub explained that using the SWOT matrix – which assesses the Strengths, Weaknesses, Opportunities, and Threats of a business or opportunity – has proven to be a very helpful tool in examining today’s agricultural trade climate. Excerpts from her presentation are below:
“The American agriculture industry is a net exporter, generally,” said Kub, highlighting this as a strength of the ag sector. “We are a geographically and agriculturally rich country that produces a surplus of goods, and exports, not only the commodity products, but the technology as well.”
Kub went on to explain that the major weakness of the sector is the fundamental volatility of ag, where weather – drought, fires, climate change – is a huge deterrent of progress. “You might argue that human beings can control climate, but we cannot control weather from one year to the next, and cannot totally prevent events, like the drought of 2012 that suddenly changed the overall volume of how much grain is being traded out of the United States,” she said. “So that's something that makes the predictability of the volume of business [in agriculture] unpredictable.”
Another potential weakness of agricultural trade in the U.S. that was mentioned is the aging transportation infrastructure. “The roads, the bridges, certainly the waterways, the export facilities, those need to be maintained because that's part of our competitive advantage,” she noted, while illustrating the competitive differences between how much it costs to ship a metric ton of soybeans from Mato Grosso (in Brazil) to the port of Santos (also in Brazil) versus shipping the soybeans from South Dakota to the same port -- $113/metric ton versus $92/metric ton, respectively.
“So because we have an efficient infrastructure, if we maintain it and keep it maintained that gives us some competitive advantage by the time those soybeans in this case get to the export facilities, and then are going to go out to the rest of the world,” she added, noting that while there are other reasons that U.S. soybeans are cheaper than Brazil’s, infrastructure is a considerable part of the equation.
Opportunity #1: The dollar is likely to be cheaper for longer. This is most likely the number one influence on price, whether for imports or exports, and ultimately affects the prospects for trade in the future.
“…in the middle of 2014 is when the Fed officially stopped their big QE2, the second round of the Quantitative Easing. They pulled back on that and allowed the dollar to float higher…, but as we move along here in 2020, you can see that once the coronavirus pandemic hit, and the Fed became very willing to push more money into the system to signal to the world in every way that they are committed to keeping that system well lubricated - that has allowed the dollar to move lower,” explained Kub, adding that this would provide a bullish influence on commodity prices.
Focusing her analysis on the dollar remaining cheaper, Kub said that those in the agribusiness sector who are net exporters will fare well, which represents most of those in the sector in the U.S.
Opportunity #2: The growth of trade of grain in all forms. As an example, Kub pointed to animal feed, noting that the amount of feed (corn) fed to a steer before it is exported is slightly more than its body weight. For example, for a steer weighing about 1,325 pounds that is about 1,463 pounds of feed, or 26 bushels. “This has been a good trend helping to move corn and grain in all forms to the rest of the world,” said Kub.
Further discussions focused on the opportunities with Free Trade Agreement partners, and trade tariffs and their impact, particularly with China.
Opportunity #3: Geographical growth areas. While there is much potential in China and Asia as drivers of growth in human diets (such as more protein) and also in purchasing patterns, Africa is the one to watch for the next 20 to 30 years. “That's where there's the most potential for a change in diets and preferences, and high growth rates in the economy in general, and specifically in grain and value-added agriculture product use,” said Kub.
“Before we get too bogged down in tariffs, let's talk about potential interest rate volatility,” said Kub to the Women in Agribusiness Summit audience. “Yes, my anticipation is that we will have a cheaper dollar for longer, which will be beneficial to exporting agriculture goods, but there's certainly the potential that when you allow this target inflation rate averaging, there could be wild swings like you had back in the 80s.”
Kub also touched upon transportation costs in the “brittle” supply chain, made much more evident by the disruptions of COVID-19. The questions that will continue to be front and center in the ag sector is: how to manage around this? How to get products out into the world when the supply chain has changed or the raw inputs are not available or they are needed in different variations at this time?
As far as tariffs and the ongoing trade war between the world’s two largest economies – the U.S. and China – Kub addressed some facets of the relationship between the two, but noted that the recent ruling by the World Trade Organization (WTO) that the U.S tariffs on Chinese goods violated international trade rules, will be something to monitor. “The WTO has said that the U.S. was in the wrong, and it's probably not going to matter,” said Kub. “The U.S. is going to continue doing whatever we're doing anyway. It might matter to the U.S.'s continued membership in the WTO, but it is time to watch this space even closer.”
To get further details on Kub’s presentation, and the other discussions at the annual WIA Summit, register for the conference. While the live event has ended, due to the virtual nature of the 2020 Summit, recordings, as well as access to the attendee list, continue to be available, as does online messaging, which is available for an entire year!
ABOUT ELAINE KUB
Market economist Elaine Kub is a columnist for DTN The Progressive Farmer, a regular financial commentator in national live and print media, and the author of "Mastering the Grain Markets: How Profits Are Really Made," an industry classic which draws on her experiences as a commodity market analyst, investment consultant, grain merchandiser, and as the operator of her family grain and livestock business in South Dakota. Kub holds an MBA from the University of California San Diego and an engineering degree from the University of Nebraska – Lincoln.
~ Michelle Pelletier Marshall is managing editor for HighQuest Group's Global AgInvesting's GAI Gazette magazine and its WIA Today blog, as well as a contributor to GAI News and the Oilseed & Grain News. She can be reached at firstname.lastname@example.org.