Chicago, Ill. — Carle Casale is paid to be negative, but he sees nothing but positives in the near and long-term outlook for U.S. agriculture.
“Just look at the math. It’s really hard to come away and not be enthused about agriculture,” said the chief executive officer of CHS Inc., the largest co-operative in the United States.
Farmers emerged from the 2012 drought in far better condition than they did during the last severe drought in 1988.
Growers received just enough moisture in the fall to apply anhydrous fertilizer to the fields where they will be planting their 2013 corn crops.
“That’s a break that we caught,” Casale told the 650 delegates attending the DTN/The Progressive Farmer’s Ag Summit 2012.
“At least we’re in a position to stay in the game and be competitive as we go forward.”
It could have been really ugly had there been a dry fall because low levels on the Mississippi River are disrupting fertilizer shipments to the corn belt.
Crop nutrient application declined dramatically after the 1988 drought, but that won’t be the case in 2012.
Corn prices are at record levels compared to $2.50 per bushel in 1988. The U.S. Department of Agriculture is forecasting record net farm income of $122.2 billion, largely because of $20 billion in crop insurance payments.
Farmers have money in their pockets and are brimming with optimism, so they won’t scrimp on nutrient application.
Casale isn’t too concerned about the European Union’s faltering economy because the demand for American grain and oilseeds is increasingly from Asia rather than Europe.
What could pose a problem is the political turmoil in Iran. A potential blockade of Iran’s oil exports would mean higher energy costs and less money spent on food around the world.
“If it were to occur, that is one of the most disruptive events we could see globally in the upcoming year,” he said.
The real source of his optimism for U.S. agriculture is China. Last month, Casale took his leadership team to China to find the answer to one question — how will the country’s gross domestic product grow over the next five years?
“If there is one variable that’s going to help determine my company’s fortunes, that is it,” he said.
His team spoke to government officials and bankers and determined that the odds of China’s GDP exceeding eight percent a year is about 20 percent, but the odds of it falling below six percent a year is zero.
China is expected to import 61 million tonnes of soybeans in 2012, which amounts to three-quarters of total U.S. production of the crop. Some forecasters expect the country will be crushing 120 million tonnes of beans by 2020, yet its own soybean production has fallen from a high of 15 million tonnes to below 13 million tonnes.
Global corn exports should continue to increase as more people enter the middle class. Five billion people are expected to be in the middle class by 2030, up from a little less than two billion today. Those newcomers will eat more meat, which means increased corn consumption by livestock.
Casale said the U.S. will lose market share to regions such as South America and the former Soviet Union because the only place for corn to expand in the U.S. is into states such as North Dakota, which has lower yields than the corn belt states.
The problem with that scenario is that the other parts of the world have less predictable weather and more political instability than the U.S.
“You have got demand that’s not going to vary, but you’re going to have production that is going to have huge, huge swings in it and obviously I believe that’s going to make markets nothing but more volatile,” he said.
Casale’s optimism for American agriculture is fueled by farmer willingness to invest in new technologies and storage, which is keeping U.S. farmers in front of competitors such as Brazil.
He is also forecasting falling gas prices because America’s car fleet isn’t growing and will soon need replacing by more fuel efficient vehicles. Casale believes the U.S. will produce more gasoline than it can consume by 2015. Lower gas prices means consumers will have more money to spend on food.
CHS is investing $1.6 billion in a nitrogen fertilizer plant to be built in North Dakota. Many other companies have also announced plans to build plants because of low North American natural gas prices.