Guests: Brett Stewart and Richard Fritz, Global AgriTrends On this episode of the Real Science Exchange we are looking into 2022 and what is shaping up for agriculture around the globe.
On this episode of the Real Science Exchange we are looking into 2022 and what is shaping up for agriculture around the globe.
Brett Stewart thinks that with the expansion of the world-wide money supply, current prices won’t break lower, and especially not in commodity markets. (6:26)
John Bedell spoke about the five headwinds, which are: increased demand, constrained supply, commodity price pressure, domestic logistics and international logistics. Of these, the only one that John expects to change is demand. (13:18)
Richard Fritz spoke on the China trade agreement and he believes the most important aspect of the agreement is setting standards for animal health. However, it is an agreement made on price, not volume so it is a very unique agreement. (31:11)
Brett Stewart addressed the labor shortage and said that as wages increase to keep up with inflation, inflation will continue to increase as well. The labor shortage is not unique to the United States, some beef processors in South America are 30% below average slaughter rates because of lack of workers. (42:47)
Richard Fritz mentioned the Russia/Ukraine situation and the impact on agriculture, mostly in grain export out of the Black Sea which could become a problem. (55:01)
John Bedell added that Russia supplies natural gas to Europe and that can have a lot of trickle down effects as well. (56:04)
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Scott Sorrell (00:00:07):
Good evening everyone. And welcome to the real science exchange. The podcast we're leading scientists and industry professionals read over a few drinks to discuss the latest ideas and trends in animal nutrition. Tonight, we get to look into our crystal ball and, and prophesize a little bit about how 2022 will shape up for agriculture around the globe. Hi, I'm Scott. Sorell is one of your hosts at the real science exchange with the continuing global pandemic production and supply issues and never-presents concerns of weather and animal diseases. There are many potential disruptors for global agriculture to help us answer those questions. We welcome back Brett Stewart with global AgriTrends Brett, you've become a regular here at the real science lecture series, and now at the real science exchange. Welcome back.
Brett Stuart (00:00:51):
Thank you, Scott. Great to be here.
Scott Sorrell (00:00:53):
Super glad to have you back. Brett, I see that you brought your partner, Richard Fritz with you back to the pub. Once again, welcome back, Richard. We thought of both of you guys for joining Richard in the spirit of, our pub theme. How did you toast the new year? About a month ago? Well
Brett Stuart (00:01:12):
I was watching thee drum ball drop in New York and I just had to have a martini in my hand and eventually followed by a gin and tonic to throw out the first line of the season. Yeah.
Scott Sorrell (00:01:29):
Nice. Nice. And are you enjoying any cocktails this evening?
Brett Stuart (00:01:34):
Yes, I am. I'm, I'm a beer guy, so I'm having a beer. All
Scott Sorrell (00:01:39):
Right. Very good. And in our co-host position and I'm pleased to welcome two new faces, Kyle Montgomery, the vice president of the supply chain for Baki, and John Bidell, vice president of supply chain strategy. Also with Baki. I wanna thank John and Kyle for joining us here. It's a real science exchange. And like, to start by asking what's in your glass gentlemen, I'm Mike Richard shirt. I
Speaker 3 (00:02:01):
I'm a beer guy. You're beer, no being from Ireland. I really should be drinking against us, but they don't have a have-it on draft. So I'm having a larger beer instead, but it still tastes
Scott Sorrell (00:02:11):
Good. Yeah, very nice. And,
Brett Stuart (00:02:13):
And I'm with both of them as well. I'm a beer guy
Scott Sorrell (00:02:16):
As well, beer as tonight for everybody. Well, guys, I'm gonna buck the trend. I'm having a, I'm having my traditional bourbon. I've got wood fruit tonight, but in about a month, I gotta show you guys something. My, my son bought me this. I dunno if you can see it a little CAS for Christmas and it's a real wooden Oak CA and what you do is you put moonshot in it. And because it's smaller, a lot of surface area for the amount of moonshine that's in there in about a month or two that moonshine gets turned into bourbon. I tasted it about a month in, it's not ready yet. It says need another month on it. So maybe in another month or so, I'll let you guys know how my creation started. So that's my story for this evening. Is that legal?
Scott Sorrell (00:03:08):
Speaker 4 (00:03:45):
Great question, Scott. So you're right. You're writing, quoting me that I was right. How about that saying, I believe this was the biggest macroeconomic experiment in the world. We grew our M two money supply by 40% in two years, 6 trillion into us money supply, hugely inflationary. And to your other question, what's happened or what's changed? Well, one thing that changed and I guess it was really in November when it changed after 10 months of just dismissing inflation is temporary Fed chairman Jerome Powell, right after he was nominated to a second term, came out and said, okay, it's not transitory it's for real, and we need to react. And so the world's been watching very closely to fed chairman's comments. And as we go into 2022, and even beyond these markets are gonna be dictated by the way, world central banks, that is going to be the influence here, driving markets and driving commodities. Now, the fed chairman said, he's looking at March of ending purchases, bond purchases, and they're expecting possibly three rate hikes this year. I think those rate hikes if I had to guess based on his tone will be very, very small rate hikes. And I think what we're seeing is we're trying to shoot this inflationary elephant with a BB gun is what it feels like to me. I just think it's his tone that suggests it's gonna be far too little to have an impact or a significant impact on breaking inflation.
Scott Sorrell (00:05:21):
So talk a little bit about inflation. What do you see going forward? If you said you don't see it the modest increase is breaking it. So what, what can we expect over the next year to five years?
Speaker 4 (00:05:32):
Everyone has an opinion. I'll give you my
Speaker 4 (00:06:26):
And with the expansion of our money supply, not just in us, but around the world, I don't see an opportunity to break these prices back lower. I think this was a fun, fundamental shift, especially in commodity markets, similar to what ethanol was. You know, I remember 20 years ago I was managing cattle on feed in Oklahoma, and we could buy corn for $2 a bushel week in week out 98, 99. And then we went through the ethanol phase and corn became a $4 bushel. And that was the baseline and corn below $4 was no longer profitable. I think now we're up above $6 and this five, $6 range may be the new trading range for corn. And I think with inflation, we set those baselines and we move forward from here. I just don't see, you know, I think markets can be overinflated. The stock market to me has been, a bubble for years, but what do I know? But I look at these commodities and I say, I don't see a significant break in 2022, or even 2023.
Scott Sorrell (00:07:31):
Now I'm gonna guess though the impact on inputs is gonna be equally as high, is that correct? So maybe profitable, not gonna be much better. Would that be a fair assumption?
Speaker 4 (00:07:42):
Yeah. So the race now is to try and keep your try and keep your net income neutral, right? And so we see these prices go up and initially, everyone thinks, wow, we're making money, you know, $6 corn. This is fantastic. When you were selling last year's corn at $6, you were making, when you're selling this year's corn at $6, you're not gonna be making near as much money. Look at where, where fertilizer is. The fertilizer indexes have dropped prices have dropped, but they're still a hundred percent above a year ago. And so it's everything it's, it's steel, it's diesel, it's every input you have is significantly higher. And so it's, it goes from this phase of inflation elation to what I think is now inflation frustration for consumers and producers.
Scott Sorrell (00:08:31):
Hmm. Yeah. Particular order to John and Kyle, my colleagues their guys, what are we seeing in our businesses?
Speaker 3 (00:08:40):
Well I mean, it's 2020 following on, I would say following on from, from breast presentation in, in December, yeah, thinking that COVID was all over at the end of 20, 20Veryand 2021 would be all sunshine is not the case. Very, very much more challenging from a, from a supply chain perspective. And as you know, as I've talked with customers of ball cam suppliers of ball cam, everybody's feeling in the same boat, so to speak you know, commodity prices very elevated, you know, when you see where crude oil is in the mid, these it's high E these brand crossing, the 90 mark, you see natural gas, which had been, you know, done in the twos and threes for, for, you know, several for a couple of years now breaking you know, five and six easing back nine to four, they're that pricing I see VA is following as well.
Speaker 3 (00:09:45):
They're just major, major changes, and major shifts. So all the derivatives of those, they come through the supply chain, they cost more and then the other key thing that, that I would call out and that, you know, it's critical in my position and, and the teams that I look after is is a dynamic on global and regional logistics you know, just being able to move stuff and around the globe with, within, within whether it's, whether it's in the country is, is a major, major challenge. And it's a major, major challenge because of that post COVID growth that we're seeing. There's a lot of demand which is a good thing. Okay. A lot of demand, there's a lot of growth potential out there, but we've got a logistics network infrastructure and say labor markets supporting it that at this juncture is struggling to keep up with that.
Speaker 3 (00:10:52):
And I see that as being an ongoing major challenge throughout 2022 that noise that we've been seeing for the last six or nine months, isn't going away anytime soon. You know, and I think it'll be well under 2023 before we see potential relief in that the challenge is of course if demand keeps growing people have money and they still wanna purchase stuff that stuff still needs to move. And it's, it's high that is enabled on a global basis. WWewill determines if that demand is, is met by, by the consumer.
Scott Sorrell (00:11:32):
So maybe I ask this, so the panel, but I mean, a cow brings up a very good point. Our business has been extremely hampered by lack of, of being able to get trucks and, and, and import some China or from Europe. What's gotta change before that improves what, what are the key dynamics behind that? And what's gonna move it. What's gonna change it, Richard. I haven't heard from you yet. Why don't we pass that one to you?
Brett Stuart (00:11:59):
Okay, well I'm always the pessimist as you know, kind of offsetting bread a little bit in, in global Agri trends. And I, I just see consumer demand client, you know, we saw a little bit of that happen already, you know, there are projections of a half a percent decline in consumer demand in January. There's less stimulus coming into our economy. There's less stimulus going into the international economy and food prices have gone up substantially across the board. So I think that people are gonna have less disposable income, in this calendar year. So I see demand kind of turning down, which means I'll be less pressure on the distribution system across the board. And so is it gonna be enough to stem the inflation? No. but at the same time, I think people are going to be a little more tend to spend their money than they were last year.
Speaker 5 (00:13:18):
I, I have to agree with you, you know through this year, about through 2021, we talked about five headwinds. You know, we talked about increased demand, which a lot of of our suppliers, a lot of our customers, we certainly were facing constrained supply. It felt like nobody could get enough employees. You were constantly behind on orders. We faced the commodity price pressure that you've talked about. And I think a lot of that has to do with money supply and hedges against inflation, and fundamentals certainly played a part in it. But I think that non-fundamentals were driving it as well. And then the last two headwinds are logistics, both, you know, domestic logistics, which I think is in large part of labor issue, and international logistics, which has just simply been a mess all year out of those five things. I think the only thing that fundamentally is gonna happen to change things is, is demand. I think, you know, if you see a softy of demand, you could see, see a change in the dynamic. I think the question is when does that happen? And what exactly is the dynamics that drive that mm-hmm
Speaker 3 (00:14:22):
Speaker 4 (00:15:20):
I, I think, yeah, I agree. I think what you're saying here is the party doesn't stop until the money runs out. Right? Exactly. And so us bank accounts, the last number I saw, I think it was a month ago, the year over year change in us, personal bank accounts was 4 trillion. There's still a 4 trillion increase over the prior year. Now, if you break it out, most of that is held by the top 10%. And the bottom 50% is a very small increase. And so I think where we're headed is into somewhat of a two-tier recovery or a two-tier correction where food inflation, we know taxes, the poor, the hardest when you're just covering your basic needs. And those needs all go up. I think what we're gonna see, that'll be the first demographic group to pull back in the economy will be the lower-income consumers. The higher-income consumers have done fantastic with, with their stock returns, with everything else. And so I think it's gonna be somewhat too tiered
Scott Sorrell (00:16:25):
Hmm. Question for you guys, you know, the problems that we're seeing labor inflation logistics, how much it was caused by COVID and how much it was caused by government's response to COVID.
Speaker 4 (00:16:41):
Yeah. I, my, my flippant response is, is the impact of the reaction to COVID was much worse than COVID. Now you can look at the death of Sof t. Six of COVID and it's no small thing, but I, I mentioned us put 6 trillion into the economy globally, within four months of the pandemic, 10 trillion was approved. So it wasn't just us, it was Japan and Europe and everyone, but 10 trillion put into there, I think had a much bigger impact by just juicing demand. And we can look at the logistic issues and yeah, there were sick employees at the ports at long beach and LA, and we got behind as people call them sick. But if you look at the total throughput of containers, it is shockingly higher. It's not lower. Our throughput isn't lowered into the ports. It's higher. And I think the bigger impact was just that we put so much pressure on those supply chains through demand than we did through sick employees. But both of them were a factor. Mm-Hmm
Brett Stuart (00:17:52):
I don't know. Brett, what do you think though about the fact that COVID is still hanging around schools are in a mess, whether they're opening or closing. So it seems like in some cases there still are labor shortages, you know, huge retirements in, in the educational sector, in the nursing sector. So I, and as prices go up just today, there were reports about the fast-food industry and restaurants trimming their menus. Mm-Hmm,
Speaker 4 (00:19:32):
Yeah. We're, we're already seeing that in the data. Yeah. That's 20 22, 20 21 was thrown gas on the fire and blow up the logistic change. 2022 is the hangover, I think that's what we're starting to see now like I said, the wealthy half of the country have piles of money on the sidelines the poorer half doesn't, but I think you're exactly right. I think that's what we're gonna see. The University of Michigan puts out the consumer sentiment index. And in November, that index said 50% over 50% of the household survey said, we think we're gonna take home less money in 2022 on a real inflation-adjusted basis that we're gonna be making less after we pay our bills. 50 over 50% of us consumers said that we think 20, 22 is gonna be tighter on our budgets. And yeah, I think that's exactly where we're headed.
Scott Sorrell (00:20:33):
Hmm. So going forward and we said starting, we're gonna look into our crystal ball. What do we see looking into our crystal ball? What kind of impact is, is COVID gonna continue to have beyond 20, 22.
Speaker 4 (00:20:49):
Good question. I, I don't know. You know, we look at the vaccine rates where, what, 68% vaccinated you look at the Amron wave. If you were or were not vaccinated, you probably got COVID, or someone, you know, got COVID. I just have to believe the level of immunity is good, much, much higher, and sure there will be more variance in, in the, in the swine world. The veterinarians would tell you over time, your sows build immunity because sows live more than a year. Your piglets don't, you have a new crop of piglets every year. So that naive population just gets clobbered. But if you can build some level of immunity, the same viruses have a smaller impact over time. And with humans, we gather immunity. Now I think one thing that'll be interesting is the one country in the world that has kept their population relatively naive to this is China mm-hmm
Speaker 4 (00:22:17):
I think that's interesting to consider, I don't know if they can hold it together or not with their contact tracing plan. Mm-Hmm,
Scott Sorrell (00:22:25):
Brett, that's a great S segue. You know, one of the biggest levers we have in global agriculture, the economy is, in China. Let's talk a little bit about China and the impact that it has and will have on global agriculture.
Speaker 4 (00:22:40):
Yeah. I'll take a swing at that. When I look, I'm just looking at my charts here while I talk the thing, that's pretty shocking to me about China. And we followed this in the pork world for years, China became the largest pork importer in the world in 2020. We followed in soybeans for years. China became the biggest soybean importer over 20 years or 20 ish years ago. But what's changed in the last three years is China went from about number six or seven wheat importers in the world to number two, they went from in corn, they were down where were they on corn? They were down number six, number seven in the world, the last two years, biggest corn importer in the world. So corn sees that impact wheat sees that impact chicken. They weren't even really in the area three years ago.
Speaker 4 (00:23:31):
Now they're the number two chicken buyer in the world. Pork number one by a margin beef, number one by two X. So all of our major commodity groups in the, in the grains and, and protein side in the last three to five years, China has jumped out way ahead of everyone and made huge, huge waves in these commodity markets. And so we're now in a spot where the single key driver is a country that is relatively not transparent doesn't publish supply or demand data or even reasonable price data. They historically have not played by the rules since 2001. When they joined the WTO they pretty much flaunt a lot of the global trade rules. And so it completely changes. I think the way we end analyze and anticipate manage risk in agriculture now is that the biggest driver in the world is one that's opaque and vague and relatively unstable. Brad,
Speaker 3 (00:24:37):
What do you think drove those? I, I saw those charts in your previous presentation, and it was pretty eye-opening. What, what do you think is driven? And those changes within China too, to move up to those higher levels of those other let's say food
Speaker 4 (00:24:51):
Groups. Yeah. I think the real dilemma that China has had has been its success in per capita income. We know that the population is stable. It's not moving, but in the last, what was it from 2020 or 2009? I think from 2009 to 2020, the number was, they moved close to 300 million people into their middle class. That's the size of America and it's still happening. And you know, I've been to the Chinese villages. I remember 20 years ago going through the villages in China and seeing kids without shoes and just real abject poverty and the villages today, the ones I was in, in 2019 looked a lot different than what I remember 20 years ago. There has been a significant level of income growth in China. And I think that has just really increased demand for everything. My most notable would be beef. You look at the beef market, it is just red, hot on fire, through COVID, through everything beef demand in China is phenomenal and it just keeps growing the prices go up and the volume goes up. And I think that's just when indicator, but I think that's, what's made them much more dependent on the global of markets for commodities is just simply their success.
Brett Stuart (00:26:11):
And, and the fact that their ag productivity has not been going up. Right. And to your earlier point, you ta, liked about lack of data. Well, even if they publish the data, nobody believes it, right. I mean, it doesn't matter if it's production or prices or anything else. And I would also throw in the fact that this year, especially there's going to be another election in China president, she is up to become president for life, basically come October, November. So he's gonna make sure that prices are not inflationary when it comes to food and there's gonna be adequate food supplies, which is also driving up some of them in, excuse me, imports into China as well.
Scott Sorrell (00:27:08):
So one of the commodities that, that China's been buying a lot of recently is pork. And I think some of that's driven by African swine fever there. Can we, can we talk just a bit about the outlook for African swine fever there, and then what if it makes it to our show?
Speaker 4 (00:27:25):
Yeah, so I think if you look at African swine fever in China, it was discovered in 2018, it was hidden and buried until late 2019. When they finally were forced to admit that possibly half of their herd was gone. Now China has half of the pigs on earth. And so when losing half of their herd, it's a big deal. And so they end up with about an 18 million ton shortage, hyperinflation, and sues hog prices inflate 250, 300%. And they do that for 10 months straight. So hog farming profits go bananas, right? $300 ahead off of, for 10 months in China, yet they kept their foot on the break-in terms of imports. Now they imported 5 million tons of pork the last two years up from one, 1.5. But if they would've let that market flow, they would've imported way more pork. And so I joke about the invisible hand.
Speaker 4 (00:28:24):
They kept an invisible hand on the scale there and maintained imports at a level that didn't overheat the global pork markets. And for us 2020, we fully expected to see some significant price moves that never occurred because China just bought just enough us pork, that it didn't inflate our price. So I think that provides a real example of how China works in these markets. So where they are today in their swine herd their prices dropped 65% during 2021 from January to December, pretty much a straight line collapse in hog prices. The Chinese government would say it's because they have successfully recovered from African sworn wine fever. I would say it's because they've been liquidating for most of 12 months. They had some significant outbreaks early in 2021 that led to some significant coly by June. They were unprofitable prices had fallen so low, they were losing money.
Speaker 4 (00:29:22):
So they've now gone seven months in China, the Chinese swine sector losing money. They've been not profitable for seven months. And in China, the difference is if you're a hog farmer and you're losing money in us, you can go to your bank and say, look, I'm gonna leverage some of my farmland and keep feeding hogs. You gotta remember no one owns farmland in China. So if you're a big hog farmer, you own a building and you own pigs and you own feed and that's it. And if that's not making money, you can chase investors. There are not a lot of options. And so seven months of unprofitability tells me they've probably been liquidating SALs to keep those pay eggs fed that they're feeding. And every farmer in the world knows the saying high prices, fixed high prices. They also know the inverse and the Chinese hog farmers know the inverse low, low prices are gonna lead to high prices.
Speaker 4 (00:30:16):
So those that can, are trying to hang on, but it's a slow bleed. And like I say, seven months of low losing money in China tells me they've liquidated a significant portion of their herd. And I think there's a good chance in the next four to six months. We see that the Chinese hog price takes off again. And the real question is, do they import or not? They've shown they're perfectly willing to let their consumers absorb that inflation without saving them with imports. And so who knows if they import or not, they'll probably step up imports to some degree, maybe not to the true level that that would flow in an open economy.
Scott Sorrell (00:30:53):
Mm-Hmm,
Speaker 4 (00:31:05):
Good question. You could, I think you could argue that either way. What do you think Fritz?
Brett Stuart (00:31:11):
Well, I think the most successful part of that agreement is kind of understated and that is, there are a lot of provisions in the agreement that sets standards for animal health, for trade, for use of products whether it be, you know animal drugs or whatever, and those will continue. And I think that has been extremely helpful to the exporting countries into, into China. The price aspect of the agreement. I, I, I've struggled with this agreement to be quite honest with you. I mean, first of all, it's a trade agreement set on prices, not on volume, so it's different than any other agreement that we've seen. It was also short-term. It did not have any enforcement mechanism whatsoever. And I don't think any of us thought China was going to reach the volume of import or the value of import that was set out in the agreement. So I think it was successful in opening the market, especially, especially for beef and, and poultry. But I also think that it was less successful
Speaker 4 (00:32:40):
Inuring that this managed trade was going to continue and give some certainty to the industry.
Speaker 4 (00:32:52):
So I'm looking at the chart here 2000, 19 20 18, China imported about 8 billion U of our agriculture, right? 2019, they imported about 14 billion of our agriculture. And that was the year that that agreement was signed on 20, 21. We'll get the trade data here soon. The year-end trade data. My estimate is it'll be 33 billion. The previous record was 26. And the commitment I think was 37 or 39 billion right around there. Right. And so you could look and say, well, we didn't get the 39 billion, so it's a failure, but you could look and say, it is three times what it was three years ago now, but the prices were also are higher, right? Oh, the, the, yeah. And the flow upside of that is you say, did the Chinese buy 33 billion of us agriculture last year because they were scared of Trump and he had negotiated this agreement and they had a gun to their head that they had to buy it or did they simply buy it because they needed it. Mm-Hmm
Scott Sorrell (00:34:26):
Interesting comments I'd like to kind of change directions here for a moment. As we look into our crystal ball, what role is an animal disease going to play in the industry, right? We've got African swine fever in China, in new Europe. We've got it in the Caribbean now avian influenza. And you know, there's talk that there's gonna be more of these diseases coming out of places like China. What role is that gonna play in global agriculture? Going forward?
Speaker 4 (00:34:59):
Any thoughts? We, we know that let's start with HPA. I, so we know that HPA, I have been raging pretty much worldwide the last five months. It's all over Europe, it's throughout Asia, Japan, Korea, China, and by nature waterfall migrate to the polls during their summer season. And then they migrate back towards the equator and beyond during the winter. And so those, those waterfowl that come from Asia, the waterfowl that come from Europe end up at the polls together congregating. And so you can mix viruses very well. And then they all go back to their continents. We now know that HPI is in us, we've had cases in Virginia. It started in Canada, up near Labrador. It ended up in Virginia. Now it's in North Carolina and I would expect, we're gonna find out there's water for El soon in South Carolina, maybe Georgia as that flock moves south. Fortunately, we have not found it in a commercial poultry barn, which would be would require notification to the world animal health organization. And there would be trade restrictions in a radius put around those farms. But we know it's, it's all over HPI I is all over and I, all we can do in us is keep, keep to those biosecurity protocols and cross our fingers and hope we don't have an issue with it.
Brett Stuart (00:36:27):
And Brent, you kind of referenced it, but just for background, the O I E the world Oregon for animal health did change the reporting requirements and the definitions last year, low path Haven, ILU influenza is no longer reportable. The only time a country has to report it is if they have a bilateral agreement with a trading party. So actually avian influenza is wider spread than what we hear about today. It's just a high path, avian influenza especially in commercial operations that you're hearing more about. So it's a disease that's never gonna go away. We're just gonna have to get used to trading, you know, poultry, poultry products in this environment,
Speaker 4 (00:37:29):
The way it works too. It's interesting to me to see how countries respond because most countries follow the OIE regulations very closely for HPI they'll put it to a 10-kilometer radius or 10 kilometers circle around the barn. And they don't trade from there. Some countries will say we're banning poultry exports from that county. Some will say some state. China's the only one that said we're banning the whole country coast to coast over an HPA. I outbreak. So that's the concern. Now, if we get an HPA on the outbreak, commercially, does China do that again and ban all our poultry? That would be a problem outside of that countries are pretty good at just hitting those little farms and we can still maintain flows without major disruption. So that's where HPA is a little different now, African swine fever. Even if we find it in a Bo in Texas, we wake up the next day and we have 20% too much pork in our market.
Speaker 4 (00:38:27):
And it is a free fall very different disease, very different situation, very concerning. And you mentioned Scott, it's now in the Caribbean basin. That was a big shock last year in August when they found it in the Dominican Republic and Haiti, those are the first cases in the Western hemisphere in modern history. And this is a disease that just keeps moving wherever you find it. It just spreads whether it's in Russia or Europe or China Southeast Asia, no one has been able to stop the spread of ASF. And so to have it in the Western hemisphere is unsetting.
Brett Stuart (00:39:06):
Yeah. Although it's much harder to spread than even influenza. Yeah,
Speaker 4 (00:39:11):
Until pigs start flying. We're we're
Scott Sorrell (00:39:17):
Yeah. Met a gentleman on the real sense lecture series from the U S D and they're working on a vaccine. I think they think they're rather close. So we'll keep our fingers crossed that they are and that we'll have at least one tool in our toolbox, to combat that.
Brett Stuart (00:39:32):
Well, if I could just say something about that even if they develop a vaccine, I think Brett and I agree that there's probably gonna be little use for it, especially in the United States and other exporting countries. It's once you start vaccinating and your, all your animals start testing positive of how do you export those products with a positive finding? So, I'm not sure the vaccine is the solution to this problem by any means.
Scott Sorrell (00:40:14):
That's an interesting thought. Hadn't thought of that.
Speaker 4 (00:40:17):
It's, it's not a silver bullet for us. Yeah. Right. Because it's, it's a complex virus and it's actually, it's not even considered highly contagious ASF. Isn't, it it's not airborne it's nose to nose, its blood, or, you know, manure, it's gotta be fluid based, but the challenge it's very hardy. It's very hard to kill mm-hmm
Scott Sorrell (00:41:37):
Yeah. Great comments. If you guys don't mind, I'd like to kind of switch the topics just a little bit on something that was touched on earlier and that's the labor issues that we have currently. Brad, I think back in December, you said there are 11 million job openings now has, has anything changed since then?
Speaker 4 (00:41:57):
Yeah, it's probably gotten worse.
Speaker 4 (00:42:47):
I just don't think politically we're gonna do that. And I don't know, here's my conspiracy theory is a political answer is we gotta keep wages going up to try and keep up with inflation. And so if we keep this labor market tight, maybe there's a chance we can keep employees going. Now, the problem with that theory is high labor creates inflation. And so it's kind of a self-fulfilling problem. But I think the only real solution we have in the, in the next two, three years is immigration. And that's just one that it doesn't sound like it's politically palatable right now. Mm-Hmm
Speaker 5 (00:43:33):
I was gonna ask about technology
Speaker 4 (00:43:36):
Eventually, but in 2022, we're not gonna solve it with technology.
Speaker 5 (00:43:43):
Yeah. It's, it seems to be an issue, you know, particularly in North America, but it also seems to be global. We talk with suppliers in, in India, in, in various parts of the world seem to be facing labor issues as much as we're facing labor issues. So I, I, I'm curious what your thoughts are, is that, is that a condition because of the pandemic, or is there something else going on there?
Speaker 4 (00:44:07):
We did kind of a, we did kind of a rough sampling of beef packing plants around the world two weeks ago. And we said, what's your processing throughput today versus a year ago? Because of the Aron variant, we've had plants slow down. We had processors in south America say we're 30% below, a year ago in our slaughter rates because of COVID because of sick workers, Argentina, Uruguay, Brazil. We heard a lot of that. We had some slow down in New Zealand, some slow down in Australia, and as bad as we've had it here, I thought maybe we aren't as bad as some of these other countries are. You know, I think we were down probably 15% and the last couple weeks in some of our play. But it's, I think it's been a major issue globally with sick workers.
Speaker 5 (00:45:00):
Yeah. I agree with you anecdotally, it seems to be a problem everywhere.
Scott Sorrell (00:45:06):
Mm-Hmm
Speaker 4 (00:45:15):
Hmm. Well, the term that comes to my mind is the great resignation, right? We just, saw a lot of baby boomers last year that said, look how much our stock is worth. Look how much our house is worth. We're just gonna retire. And that may have more of an impact on, the white-collar world, than blue-collar. I don't know. That's just a thought mm-hmm,
Scott Sorrell (00:45:39):
Speaker 4 (00:46:14):
It's interesting. Right. I think that's a, I think it's fascinating to go down the road of how fast technology is changing. The one thing we know about technology, it gets better and it gets cheaper. Yeah. And so we look at that the autonomous driving, that's kind of been a joke like, yeah, right. Everyone's gonna and get killed in a car and it will get better and it will get cheaper. And whether even you think about lab-based protein, not viable today, not even close, but it will get cheaper and it will get better. I think you have to pay attention to some of those things. And technology is a, a wave that's. We know how it goes.
Scott Sorrell (00:46:54):
Yeah. That was something I wanted to touch on in your presentation, you talked about a linear line between meat consumption and global GDP. And then I, I just wondered if you had factored in, you know, things like plant protein, there's a move toward that in some populations, lab-grown meat insect and microbial proteins. Have you, have you factored in any of that in your, your calculations, on the demand for, you know, traditional animal meat sources? Yeah. So
Speaker 4 (00:47:26):
I had forecasted out 10 years based from 2020 to 2030, based on the IMF GDP forecasts, which have a nine, nine correlation 0.9, nine correlation with global meat demand, more GDP, more meat demand. And what it told us was in the next 10 years, we're gonna need 75 million tons, more beef, poor compulsory. In the prior 10 years, we increased by about 56 million tons. We're gonna need 70, 79, 78. And so what it's saying is we're gonna need to increase faster. So yeah. Thoughts on alt meats and I don't know, I'm probably a little different than a lot of people on alt meats. I think the, I think the lab-based thing is for real, in theory, I think we're at least 10 years away. I think the opportunity for lab-based meat, I'm not gonna be, I don't think I'm gonna be 3d printing steak here 10 years from now in my office.
Speaker 4 (00:48:24):
But if you can make, lab-based just pure red lean meat, muscle tissue. That's one thing. If you can make it for $2 a pound, that's a different thing. And I could see a great opportunity for that to be blended with 50, 50 trim, or just be used as an additive to stretch existing meat. I think that's probably the gateway for lab-based meat, but I still think we're 10 years plus out. Then, the vegetable protein, honestly, I think it was somewhat a, of a fad. I think it'll be there forever. I'm not saying it won't be there. It was really easy to sell a vastly improved product to the three to 5% of Americans that did identify as vegan or vegetarian. I mean, you think about the old vegetable patties that have been around for 30 years. I don't even know why they made them or who ate 'em mm-hmm
Speaker 4 (00:49:15):
So it was easy, to sell that to that first group, go get the next 5% of Americans. I think that's gonna be a tougher sale. And I think we're already seeing that resistance in the, in the plant-based meats, you can look at the stock of beyond to beyond meat. Their stock has taken a beating and I think there, I think their big growth is behind them. I think they'll be there. I think they'll be there for the long haul. I don't think they're gonna be 10% of the market in 10 years and probably not in 20 years, my opinion.
Brett Stuart (00:49:48):
Good insight. It's interesting to look at that correlation and it's held for a long time. The question is, will it hold in the future? You're
Speaker 4 (00:50:02):
The correlation between GDP and meat? Andry yes. 50. Yes. What it is, it's a 50-year correlation thus far,
Brett Stuart (00:50:11):
But it will hold given the pressures that producers are going to see in production, especially climate-related and financial input-related pressures. And do you think that might change the shift in protein that is the less environmental impact? Let's say poultry versus you know, beef production, will the world move a lot more towards poultry and eggs, maybe some aquaculture items rather than keeping that correlation with beef and
Speaker 4 (00:50:52):
Pork. That's a good question. Really. Fred, I think that has been happening for 30 years. If we look at global per cap per capita beef consumption, it's relatively flat to down for the last mm-hmm
Scott Sorrell (00:52:18):
Brett. I saw you take a drink from your cup, which reminded me that there was a topic I haven't touched on yet. And that's weather patterns. So why don't you tell us what's in your cup and why that reminded me of matters?
Speaker 4 (00:52:30):
I'm the boring TTO of the group here. So I was trying to think of what I could, what I could mix up today. And I got quite exotic, Scott. I, I woke up, it was minus three this morning here in Southeast Idaho. I don't think we've been above freezing for four weeks. I've got ice on my step that I think it's been there since Christmas. It's just been cold. So I got up and I made myself, hot cocoa. That's what I'm toasting with today. Yeah. Great idea. So whether right weather. The weather's the great unknown. It's always the topic of discussion in agriculture because we simply don't know. I weather the great determining factor. I would say. We work, with a pretty well-esteemed meteorologist Dr. Art Douglas. He's a retired meteorologist from Creighton University. He has been forecasting long-term agriculture weather patterns for over 40 years. He is in retirement. We keep begging him to just keep taking our calls. Anyway, he sent me an update two weeks ago and he said, Brett, the Lene pattern in the Pacific, that's the cooling on the equator that lends to drought in the Western us. That's what we've had now for well over a year, that Lineen pattern that caused wildfires and drought in the Western us. He said the models are now forecasting that will continue through spring.
Speaker 4 (00:54:01):
I think that's significant. Now it could change the model as they're forecasting that, and I don't know what it does into summer, but you can see what's going on with our us cow herd because of drought, expensive hay, lack of forage. We're contracting our beef herd. Now we've seen the wildfires in California, the environmental impact of that. It looks to me like this doesn't sound good. That looks to me like at least in the spring, we're gonna remain in a drier weather pattern, particularly in the west and the Western planes.
Scott Sorrell (00:54:36):
Hmm. Yeah. Thank you for that. Got a few more subjects. Just we're getting, getting toward the end here. Wanted to touch on a few things. One that's starting to heat up is you know, what's going on with Russia and what kind of impact that, that, that unrest is gonna have also what might be going on with Taiwan and China, either one of you gentlemen, wanna touch on that?
Brett Stuart (00:55:01):
Well, the Russian situation is complex, disabled from an agricultural standpoint. I think the real question is where, where do the grains go out of that Southern tier? How do you export, you know to feed grains and wheat out of the black sea anymore and what kind of disruptions there's going to be all also, we've seen problems in transshipments through some of those ports and that is stacked up some products, especially poultry. So I can't predict, you know, what Russia is going to do there, but it's certainly backing up the already overloaded value chain of products moving both in and out from an agricultural standpoint.
Speaker 5 (00:56:04):
I'm concerned about Russia and energy. You know, I think that what we're seeing with natural gas in, in Europe this year which is in, in large part, and part of it certainly is, is European energy policy. But a large part of it is, are Russia and the supply of natural gas to Europe. And that has cascading effects for touching many
Speaker 4 (00:56:23):
Industries.
Brett Stuart (00:56:25):
Yep.
Speaker 4 (00:56:25):
Russia supplies, a third of Europe's natural gas, and they are having hyperinflation in their energy sector right now, if there's ever a time for Putin to make his move it's to do it at a time when Europe just simply can't afford to oppose him. Now, Ukraine is the number four corn exporter in the world. And they're also the number four wheat exporter in the world. I don't know what happens. I, I think if, if he's ever gonna make his move, this is a prime time to do it, especially before summer when they are, when Europe is dependent on his natural gas. I think I think there's some real risk there.
Brett Stuart (00:57:09):
Yeah, he has to move before spring, just because of some of the transportation logistics they would face, but, you know, the question is still, why, why would he wanna do this and face the economic and social consequences of this? And I think it would be a significant fall in demand, not only in that part of the world, but you know, Western Europe as well.
Speaker 4 (00:57:40):
I think if he can do it without a massive war, which it may be, it may be a sophomore, the Eastern third of Ukraine is somewhat pro-Russian. Anyway, it would be a great coup for him, if he could go in somewhat unopposed by Europe and by us, it would be a huge Russian
Brett Stuart (00:57:59):
Victory. Well, there would still be sanctions imposed in
Speaker 4 (00:58:39):
The other footnote, I think about time with Russia or Ukraine, we gotta remember, we're dealing with nuclear power here, which has always unsettling.
Brett Stuart (00:58:50):
Yeah. Well, that's a really good point. Remember, Ukraine gave up its nuclear weapons in turn, we and Russia, and Europe agreed that they would maintain their current borders. And so if you have a North Korea, let's say, who's watching this closely and you give up your nuclear weapons and you still get invaded by one of the major superpowers. What is that telling other countries? You know, don't, don't give up your weapons, don't give up your defensive mechanisms here. So but I don't know. I think us is being severely challenged because they're seen as weaker and, and maybe not focus on the rest of the world as much as they should be such as Taiwan and North Korea, which is facing you know, significant food shortages and labor shortages. So it, it, it's a very, very on settling time for me to look at what's happening in the international foreign relations and military conflicts around the world. And, you know, you, you know, you guys know, I do a lot of work in Africa. We had more cos or in the vigils hanging onto power through illegal means in Africa than we've had in probably 15, 20 years. So as, as our attention is elsewhere in the west, things are I believe getting a lot worse. And I started this kind by saying, I'm Mr. Negative, I'm the old group here. So maybe I just need another beer.
Speaker 3 (01:00:55):
Well, one thing for sure, Jan, is that at least from 10, 15 years of experience plan about in commodities increased geopolitical risk. There's only one thing that's gonna do to prices. And we've already been talking earlier about commodities already, significantly elevated inflation, higher if the situation does deteriorate, then I see that certainly have further risk in those, on those commodity prices. Mm
Speaker 5 (01:01:24):
While we're on commodities, I have a question, you know, we touched a little bit on labor productivity. What do you see as trends in agricultural commodity yields? You know, I think over time you've seen continued improvements, but I've read that there's concern that because of climate or because of other things, we might not see that trend continue you. And, and so what do you see that bringing in the future?
Speaker 4 (01:01:48):
You know, I did, a project years ago for a company to determine, can we feed 9 billion people by 2050? And we tried all these different scenarios. We froze the footprint, we reduced acreage. We said, can we do it? And it was pretty shocking. What we found out was absolute. And we can do it easily. It's, it's quite easy to do. And, the pathway to feed 9 billion is to spread productivity throughout the third world. If we can spread the productivity, we have to Brazil and India in dairy, you know, think about dairy. We can, we can bury the world in milk. But productivity, you freeze productivity and we're in big trouble, big trouble. And so we don't have to keep improving productivity here as long as it spread globally. But overall productivity is the only answer.
Brett Stuart (01:02:45):
Yeah. And there's still a lot of idle lands around the world as well. But I agree. And you know, I, I think before I retire fully, you're going to see more of like CRISPR technology in livestock production, you know? And so both China and us have now realized that the amount of money going into agricultural research and productivity research has fallen too low. So that's the one bright spot. I see right now I can't believe I said a bright spot.
Speaker 4 (01:03:30):
My
Brett Stuart (01:03:30):
Reputation is
Speaker 4 (01:03:37):
Beer is in,
Brett Stuart (01:03:40):
Right. I'm only worried about bare productivity
Speaker 4 (01:03:47):
That's the inflation that hurts.
Scott Sorrell (01:03:51):
Yeah. And with that, I think we'll get everybody another round and we'll call the last call. And we'd like for all of you guys to do is you know, think about those of us in, in production agriculture, what are one or two recommendations that you would have to help us manage the inflation and the supply chain issues that we're facing today? And we'll start with Fritz.
Brett Stuart (01:04:21):
Ooh. Well, I think, one major issue of productivity is just what I stated was the CRISPR or similar technologies that are gonna be made available across the board whether it's in hand or implants. The second is the fact that I think as prices go up and populations, especially in developing countries, go up, you are going to see greater adoption of productivity and adoption of existing tools that they haven't utilized such as GMO grains across the board. And so that's where I see productivity coming in or could come in relatively quickly with the automation still slow, especially in the west
Scott Sorrell (01:05:33):
Kyle, any thoughts?
Speaker 3 (01:05:35):
I, I agree with Richard on the, on the inflation side and driving productivity you know, with those costs going up, you have to look at ways to offset it. And you know, the typical ways that people have been doing for decades and centuries is you know, do things faster do things using less energy all, all the about it's. But they've been able to do that much faster and adoption of technologies and adoption of those opportunities. You know, most companies have continuous improvement groups in their organizations and they're even more important in today's world than what they've, what they've been recently on the supply chain issue side. If I remember how I talked, to my team at the start of this year, thinking just for 2022 is Hey ex expect 20, 22 to be another bumpy road on, on a challenging year.
Speaker 3 (01:06:37):
And you know, our approach to this and what we would encourage our customers to do and our suppliers to do as well. We all wanna win in this supply chain is plan ahead. And very importantly, communicate and connect across your supply chain internally, we, with your customers and with your suppliers, don't assume what you expect to happen, it's going to happen. Okay. Cause it probably won't and be, and be agile, be agile, and be very curious with all your partners in the supply chain to keep ahead of this challenging environment,
Scott Sorrell (01:07:32):
Thank you for that. John, what are
Speaker 5 (01:07:35):
Your thoughts if I were to, if I were to build on something that Kyle said, I'll, I'll go back to earlier in the hour, we talked a little bit about supply chain headwinds, and I think we all agreed that demand is probably the one factor that is driving it that could change things maybe more radically than, than any of the other headwinds. And I think that it's critical for people to pay attention to where that demand is coming from and to try to predict when, when it's changing and how it's changing. And I, I also think that some of the other headwinds are gonna impact that, you know, we are facing and continue to face really serious logistics challenges. And I tend to think in a lot of cases, depending on the industry it's driving, maybe regionalism more than we've seen in, in other areas. And so I, I think pay attention to those factors, pay attention to demand and pay attention to, to where the demand is coming from. That will be probably the most helpful thing that somebody could
Scott Sorrell (01:08:31):
Do. Very insightful. Brett's final words. Yeah. I
Speaker 4 (01:08:34):
Agree with all of you. I think those are great comments. The volatility is for real, and in agriculture, we always talk about markets that are volatile and uncertain. I think we could say that every year, but where we are today is different and it's different. One because of China, it's different because of labor, it's different because of logistic issue use the uncertainty and volatility are much more real. And so for producers, I think when, when times are volatile and uncertain, you have to pay more premiums. You have to buy more insurance, whether it's through futures positions, you just have to spend some money and say, look, I'm not gonna try and hit a home run here, I, to try and survive this. And so I think you have to be quick too, to pay a little money here and there to try and protect yourself.
Speaker 4 (01:09:22):
I talked to a farmer the other day, and I said, what are you, are you worried about fertilizer for spring? And he said I have all of my fertilizer bought for spring. And I said that's incredible. And he said, when I bought it, I looked like a complete idiot because I was out there just paying these exorbitant prices. But he said with the supply chain situation, you buy early, buy everything and pay what you gotta pay. And I would suggest for farmers, especially because it's so there's so much urgency in farming, look at your farm and say, what's the one part or tool that could shut you down this summer? You know, I raise some alpha here in Idaho and we use underground main lines to run sprinklers. I have been buying slip cups, slip couplers to repair broken main lines. I've got about five of 'em in the shed because if my main line breaks this summer and the farm store doesn't have one, I can't irrigate hay.
Speaker 4 (01:10:16):
And in the middle of summer, I've got about three days and it's gonna be done. And so I think for any farm, you have to take a hard look. I talked to a dairyman who had lost his computer. Switchboard went out on his milking operation. He said it was two in the morning. And I called every dairy within 300 miles. It would answer their phone until I found one because you just can't get stuff. So you may have to spend some money and build some inventory of parts and things that you may not need, but boy, get out there and plan early. I think logistics are gonna be a real risk. And so uncertainty and logistics would be the things I think you manage around.
Scott Sorrell (01:10:53):
All right. Thank you, Brett. And thank you, gentlemen, for sharing your insights and vision for the future here. As we all know, the global economy and market conditions change so rapidly, but as we all work to supply food to an expanding population, we need to be able to manage this fluid environment. Also want to thank our loyal listeners for coming and spending another hour with us here again at the real science exchange. We hope to see you next time here where it's always a happy hour and you're always among friends.
Speaker 6 (01:11:19):
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