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agriculture

Quick Look at the Economy

2016 isn’t off to the greatest economic start if you’re anywhere but the United States. China’s stock market has flirted with free fall, the Middle East has Shia-Sunni outright war in the tea leaves, and commodity prices have all but collapsed. The EU and Japan still pass the mirror test to see if they’re breathing – but barely.

With clients in agriculture, financial services, and construction on the agenda for the first half of the year I’m asked to weigh in. Generally, I’m optimistic.

There are problem areas. Commodity prices in the low range means crop farmers see the end of their 6-7 year run of record returns. Not a lot of new pickups in the shed these days. It’s a return to eking out profit from slim margins. Livestock producers benefit from lower feed prices. A lot of eyes are on the presidential election where a Republican win could affect biofuel policy that’s been buoying up grain prices – with corn as the leader. Plus the El Nino introduces even more weather and moisture uncertainty than usual. The dollar is expected to remain strong, working against exports. Huge amounts of US grains are sold overseas and the competition is stiff.

Financial service companies – banks, insurance, credit unions – depend on a stable to rising economy to produce loan demand. A GDP performance for the US economy usually points to a reasonably good year but it’s not quite that simple. The Fed is raising interest rates, albeit tentatively. The rest of the world is not. It makes for difficult decision-making. I’ll be in the room for about a dozen strategic planning meetings in this sector this year and the discussions will be “interesting.”

No sector deserves a better environment than construction and the outlook is fairly good this year after nearly a decade of abysmal to bad news. Commercial construction for 2016 should be up. One of the key indicators, billings at architectural firms, were up significantly for all of 2015 which should translate to buildings coming out of the ground in ’16. The home building sector is also looking positive. The National Association of Home Builders is projecting about a 25% increase in 2016 year on year despite some nagging worries about labor availability and costs. Job creation is a big driver in this sector.

But the question about whether the US economy can stand up to a world slowdown still stands. There are several factors that work in the country’s favor:

  • The US is so much better an investment destination than other global regions that it stands to attract more capital.
  • US consumers, as long as the job outlook remains strong and fuel prices remain low, will spend.
  • China is a totalitarian state. Don’t overlook the possibility that it can do almost anything it wants to get growth back up to a 5% GDP range. Plus it still possesses huge cash reserves.
  • The EU and Japan don’t have a great recent track record for growth but neither do they stand to take a deep dive into recession.

New Possibilities in Agriculture

I admit it. Agriculture fascinates me. As someone with an engineering education I see so many potential upsides, complex merging of systems, and breakthroughs ahead.

I’m not a spiritual person but the miracle of growth is inspiring. As Cargill Executive Director Greg Page once said to me, “Trust in photosynthesis.”
Hand Water Plant Small

I envy the nifty toys agriculture pro’s get to play with. Robots and drones. Tiny nano-sensors that eventually feed big honking computational power to make everything work even better. Curls my toes.

If I could restart an education and career I could easily choose agriculture. It appeals to the boy still in me.

A fascinating niche of the field is the never-ending possibility of new crops and new uses. I spend a lot of time with the monoculture – the empire of corn and soy that dominates the best soil in America. But there are very interesting upsides for discovered or rethought plants and the potential within them.

Perhaps none of them will make a huge difference in agriculture – at least not in my lifetime. But every time I hear of a new potential crop, an experimental program, an adaptation, the possibility to grow a cure for a disease, a new source of energy, or a breakthrough that could help us in climate change, I’m inspired.

Carinata, moringa, and Rhodiola rosea are examples. Each has promise in a particular niche of agriculture.

Brassica carinata is the most interesting of new biofuel crops. It’s essentially a weed – Ethiopian mustard – that grows on marginal land in heat and drought conditions. New breeding by Canada produced a plant that rivals canola for yields, is resistant to disease, produces long hydrocarbon chains, and has a number of uses. Jet fuel, lubricants, and bio-plastics are all on the list.

Moringa trees are native to the foothills of the Himalayas and are cultivated in the tropics. One nickname is the miracle tree. It produces small leaves and pods that have an impressive nutrient profile. With a protein content nearly that of eggs, more potassium than bananas, more iron than spinach, and massive amounts of calcium you can see why it’s a new buzz in natural foods.

This is no recent discovery. Moringa were used 4,000 years ago but the application to a modern society for anti-oxidants, anti-diabetes, anti-inflammatory, anti-arsenic, and anti-cholesterol are just coming into wide recognition. Look for development of species even easier to harvest as the world seeks food for the next two billion planet occupants over the next 25 years.

Rhodiola rosea is an adaptogen. It’s made into a supplement that has an ability to improve the response to physical and mental stress and trauma. There are claims it lifts mood, increases energy, and sharpens focus. It can optimize insulin production and extend the effects of caffeine. The root is powdered or chipped for tea.

Cultivation is ramping up because demand far outstrips the wild sources from Siberia. Canada, Scandinavia, Poland, and even Alaska are doing startup cultivation. But there is a growing emphasis in agriculture on indoor cultivation of many specialty crops.

The Drought and Farmer Viewpoints

It’s been almost two decades since I first worked with a bunch of smart farmers who lead their state associations for the corn and soybean commodities. I’ve learned their business, watched them navigate a series of farm legislations, try to wean themselves away from government subsidies, and then prosper as prices came up dramatically over the past five years.

This year I returned to the same gathering for a fresh class of state association leaders. I didn’t know quite what to expect in a severe, brutal drought. I talked with some producers who were not going to harvest much of a crop. A very few lucky farmers located further north in the country or in the relatively moist East are going to do extremely well. But even the unlucky were optimistic as one can only be when you put almost everything in your business on the line every year and throw yourself on the mercy of nature.

If you want to see an example of resilience listen to these men and women as they talk about their ground, the crops, and their plans for the future. Certainly crop insurance plays into the situation. But they firm their jaws, speak frankly about the risks, and when asked about another drought “event” (that’s the term they use) they become gravely contemplative.
“That would take us back to zero,” one farmer told me. Another said, “We could deal with that but we’re probably going to sit back and see how the winter reestablishes our moisture before we even decide to plant next year.” The implications are serious for food supplies, energy prices, global trade.

If the breadbasket of America was to see anything similar to the conditions that have ravaged Texas for almost a decade we might look at food security suddenly becoming a strategic concern. The executive branch might need to step into the farm situation instead of allowing Congress to continue to argue over food stamps for the poor instead of providing a safety net for the people who feed the country.

The Future Is Where You Find It - Late 2011 Sessions

At the end of another year – my 25th as a futurist – it’s interesting to look back at recent projects for some perspective and observations. My work takes me to a wide range of locations and there’s always an interesting twist to the proceedings.

Parked in between the strategy sessions that form an increasing share of my practice were some intriguing groups and industry situations.

I worked extensively for the Institute for Management Studies this year. IMS is one of my most loyal clients and I’ve been on their faculty for over 17 years. I teach a full day seminar on anticipatory habits, foresight practices, strategic thinking, and informed decision-making. Typically there are executives from a stimulating mix of companies that come together for an interactive day of observations, discussions, debate, and what I think are some excellent case studies. Boston was my final region of the year and my host Bill Brottmiller had attracted top notch people from everything from shoe manufacturing (New Balance) to insurance (Amica and others) to sound equipment (Bose) as well as healthcare, government, and banking.

This group applied the section I teach on “Seeing Around Corners” in some intriguing ways to identify early signals of consumer behavior, an innovation-resurgent America, and some of the next major risks in the insurance field. It was a superb day. That night I sat next to a venture capital guy in the energy field who regaled me with things I’d never known about how to store wind and solar power for use in high-demand periods.

I spent December working largely with agriculture. Funny how that happens a lot when the land is fallow and snow blankets the Breadbasket. I’d never worked with the aerial application side of ag before but I keynoted a conference where I looked, among a range of developments, at the substantial penetration of automation into the field. I’ve long held that jobs that are “dirty, dangerous, or dull” have the highest payoff from robots and automation. The barnstorming background of crop dusters is long gone and is now being replaced in odd corners of the world by small flying robots that could be the safer, more efficient future of that industry.

Earlier in the year I was with a roomful of Washington state mayors. I worked on a long term consulting assignment with the National League of Cities and their Advisory Council which is charged with identifying the emerging trends that will affect America’s towns and cities. This leads to a fair amount of work in the municipal space.

I had an interesting side conversation with Seattle’s Mayor Mike McGinn. When I asked one of my typical futurist questions, “What’s surprised you this past year?” He had a quick comeback. “Food trucks and medical marijuana!” Of course they weren’t connected. Municipalities walk a tightrope in uncertain funding times if they allow any form of “semi-legal” drug use that’s not permitted under Federal law. I won’t say more. But the food trucks comment related to something very interesting: the movement of some of America’s most talented and adventurous chefs out of the restaurant establishment and onto the streets.

Now the cognoscenti among foodies are passing around social media hints, tips, and raves on where to get the best mobile food in America. Many chefs are experimenting, reinventing, and testing recipes from a few burners or an oven inside of a moving kitchen. “Meet-ups” and tweet-enabled magnets of inexpensive, gourmet-quality eats are popping up all over America and McGinn said his city is trying to stay ahead of the massive burgeoning of the trend in Seattle. The future is where you find it.

The Buffett Letter

I read Warren Buffett’s letter to me as a shareholder this morning. Direct, analytical, balanced as usual. I like this passage a lot:
“Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be. In the past, it required no brilliance for people to foresee the fabulous growth that awaited such industries as autos (in 1910), aircraft (in 1930) and television sets (in 1950). But the future then also included competitive dynamics that would decimate almost all of the companies entering those industries. Even the survivors tended to come away bleeding. Just because Charlie and I can clearly see dramatic growth ahead for an industry does not mean we can judge what its profit margins and returns on capital will be as a host of competitors battle for supremacy.”
The chairman’s contention that obvious upside growth is no guarantee of success is one that many leaders miss. I see it in industries challenged by bright but unclear futures.
Agriculture is an example. It’s obvious that increasing world population is going to demand food and a growing middle class will increase demand for animal protein in diets.
OK. Barring a major disease outbreak or a comet hit, this is an obvious outcome.
Many in agriculture assume that North America will be the big winner. That the world will beat a path to their production. That other nations, other producers will not be able to keep pace or match their products. Here the Buffett interpretation is missed.
Predictions from Malthus to Paul Ehrlich to recent forecasts of peak oil after-effects have breathlessly proclaimed danger. I watched Lester Brown of the Worldwatch Institute in 1995 do a predictive presentation on
Who Will Feed China. He’d written a book with that title.
The answer to Brown’s question? China itself. While importing substantial quantities of soybeans and vegetable oil it is quite adept at meeting its own food needs and exporting very large quantities of foodstuffs and value-added products to the world.
Where is Buffet’s “host of competitors” battling for supremacy? Everywhere.
I can cite examples of basic crop rotation and sound agronomy’s ability to triple and quadruple the productivity of land in Asia and Africa.
Then there’s wonderful technology
not involving genetic modification but making use of plant genomes to bolster Mendel’s techniques in developing even better crops and nutritious food. Mega-competitors like Brazil, Argentina, and huge multi-national corporations that have bought land in the poorest nations will crank out food, feed, and fiber in the next 3 decades.
Errors in judgment like looking at autos in 1910 or TV sets in 1950 or hand-held converged devices today with rose-colored myopia abound. There’s no argument that strong demand is ahead but there are no clear, dominant, easy winners.
Heck, one of my clients, Motorola, is spinning off its well-known handset business and retrenching to the predictable, profitable platform that has been there for decades: two-way radios and similar technology. Personally I think it’s a solid, overdue strategic move.
Question the too-easy and too-optimistic assumptions. Widen your view. Look ahead. Identify the potential competition before it surprises you. And then adjust your strategy to compete in the good, but challenging times ahead.