he U.S. is mired in an economic doldrums of its own creation. Weighed down by the excessive debt run up relying on the financial and housing industries to provide jobs and create wealth, the country desperately needs a new engine to the economy. How about agriculture?

So far, American manufacturing has had a hard time coming back on line. No matter how cheap the dollar gets, wages in the US are still far too high compared to countries like China, Brazil and India. And when it comes to and advantage in manufacturing technology, something emerging economies truly need, Germany has been more focused on that.
Something has to come along that will allow us to earn more than we spend if we’re ever going to pay off all of those trillions in debt. But what? A new technology like clean tech? Maybe but it’s going to take years, if not decades before we see a meaningful industry there. Besides, the Chinese already eating our lunch in solar, and there are precious few incentives to develop a domestic alternative energy industry.
This week there was a brief flash of hopefulness that should remind us all of America’s basic strength. Before the rise of American industry, the continental nation was a powerful agricultural exporter. Tobacco, cotton, grain and rice were once the building blocks of wealth in the U.S.
On Monday, futures contracts for corn and soybeans jumped 5% and 2% respectively in a single day, according to the Wall Street Journal, which went on to add these observations:
“The farm economy is coming out of the recession far faster than the general economy,” said Don Carson, a senior analyst at Susquehanna Financial Group, New York. Overall, the USDA projects net farm income to climb 24% this year to $77.1 billion, the fourth highest ever. In September, farmers were being paid 62% more for hogs than a year earlier, and 32% more for milk.
Those kinds of jumps have helped Cargill, America’s largest private company and a centerpiece of the agricultural commodities industry, to post huge gains in profits, according to Agrimoney.com:
The group, the world’s largest farm commodities trader, said that earnings in the June-to-August quarter surged 68% to $883m. Revenues were 6% higher at $27.8bn.
While the performance was boosted in part by the contribution from Mosaic, the fertilizer giant of which Cargill owns more than 60%, the Minneapolis-based company also highlighted a “resurgence” at its commodity trading and processing operations prompted by the jump in crop market volatility.
Mosaic’s role in Cargill’s success is a reminder of the importance of fertilizer to agribusiness. That’s what is driving the takeover battle for Canadian fertilizer giant, Potash Corporation (POT). After a $38 billion offer from Australian mining concern BHP Billiton put the company in play, there are now fears that China will make a bigger bid for the company and divert production from the open market toward its own needs.
We haven’t had this kind of fight with the Chinese since they tried to buy Unocal a few years ago. That almost puts agriculture in the same league as the mother of all industrial bastions, the oil business.
Whatever the geopolitical ramifications of agriculture’s rise, there’s an economic upshot to all this fighting over fertilizer. More and more investors are looking toward agriculture as a way to earn solid returns. Former venture capitalist Paul Kedrosky reported earlier this month on a massive $130-170 million deal for farmland made by the Lawrence Group, the secretive Missouri family that has interests in banking and HVAC distribution. They see a strong future in farming even while others have been bailing out.
The Lawrences have been making a decade-long push into agriculture buying up Florida citrus groves to become one of the top producers in the state. They even made a big bid on US Sugar before losing to the State of Florida which wanted the land to reclaim the Everglades. The Lawrences were looking to add these holdings to substantial farming interests in Illinois, Missouri, Arkansas and Mississippi where they grow cotton, soybeans, rice, wheat and corn.
Add it all up, as The Palm Beach Post has, and that puts the Lawrence Group firmly within the realm of billion-dollar operations. No one thinks of the next Warren Buffett coming out of the farm belt, but that doesn’t mean it can’t be done.
Just ponder a few of these numbers put together by The New York Times:
The estimates show that American farmers will ship $107.5 billion in agricultural products abroad in the fiscal year that ends Sept. 30. That is the second-highest amount ever, behind the record $115.3 billion in exports logged in 2008, when commodity prices soared as the global demand for agricultural products was helped by fast-growing economies in the developing world. Next year, exports are expected to total $113 billion. [...] Total net farm cash income for the current calendar year was estimated at $85 billion, a 23 percent increase from last year and well above the 10-year average of $72 billion.
That $85 billion sounds like a lot. But agriculture prices — and exports — are going to have jump a lot higher before we can count on farmers to earn us a way out of our debt overhang. Is that likely to happen? Probably not. But there are some smart folks like Jim Rogers who have been predicting this as a long-term trend.
And there’s evidence that he’s not so far off in predicting food shortages in the future that could drive much higher food prices. Such increases would make these numbers from the WSJ look tame indeed:
The USDA estimates farm exports climbed 11% during the fiscal year ended Sept. 30, to $107.5 billion, and forecasts a further 5% rise in the new fiscal year.
Posted under
Uncategorized