Ag Trade, Infrastructure, Productivity: U.S. Facing Down a Stacked Deck

Part four of a seven part series — Fields, Finances and the Future

The United States has the biggest stack of chips at the poker table when it comes to the world’s top agricultural exporting nations, but the stakes are ramping up. In several areas, Uncle Sam is playing against a stacked deck. The three aces in the hole — efficient production, high yields and superior infrastructure — that created favorable odds for America’s farmers and their exports may not hold up due to a full house of poker-faced export sharks from South America.

U.S. farmers producing commodity crops for export, such as soybeans and corn, are facing stiff competition from Brazil and other South American nations such as Argentina, Paraguay, and Uruguay. These nations have gained a competitive edge by offering agricultural products at lower prices, thanks to reduced regulatory burdens and favorable cost structures, according to Darrell Holaday, President and Analyst for Advanced Market Concepts, who points out the prowess of South America’s agricultural productivity.

“Brazil is a very productive area with large farms, less regulation, and more importantly, lower costs,” he said. “The growth of corn and soybean production in this region has widened the gap and Brazil is a formidable competitor. Their ability to consistently offer products at prices well below U.S. prices poses a considerable challenge for American farmers vying for their share in the global marketplace.”

Holaday draws attention to one of South America’s inherent advantages – their continuous cropping systems. He points out that unlike the United States, where, for the most part, row-crops are harvested once a year, countries like Brazil, Argentina, Paraguay, and Uruguay can continually have a crop, with two crops grown off the same piece of land in a single year.

“We have a crop on our acres hopefully every year, but in big parts of Brazil, Argentina, Paraguay and Uruguay, they can continually have a crop,” Holaday said. “Having two crops a year off of the same piece of ground is normal. For example, there’ll be a tremendous number of soybean acres grown that were planted in early October and harvested in February. And right behind that, they can put in a corn crop. They call it their winter crop, because they really don’t freeze, or they freeze so very seldom that they view continuous cropping as normal. This is a huge advantage that significantly increases their productivity per acre. You just don’t have that kind of productivity in central Illinois or central Iowa on a per acre basis. But, continuous cropping takes a lot of inputs, and that could be one negative for them down the road.”

Some factors have less to do with advantageous climates. According to Holaday, the critical role infrastructure plays in competitiveness is growing. Infrastructure, such as ports, river channels and locks, is an area where the United States has held a high level of superiority, but Brazil and other nations have made tremendous strides. The gap is narrowing. Part of the reason is the level of investments that are being made in infrastructure improvements. For the most part, in the United States, much of that work comes from investments from the government. Meanwhile, Brazil has found another high roller to stake its infrastructure upgrades.

“China’s substantial investments in Brazil and other South American countries’ infrastructure and overall financing at the producer level have bolstered the competitive postures of those nations,” Holaday said.  “China is in a political environment that allows them to step in and provide financing. We know how China does financing; in the end, they want to own it. They saw the opportunity and they have invested heavily in Brazil and all of South America. That’s just smart investing. I hate to say that, but you could see the opportunities that Brazil presented.”

Mac Marshall, Vice President of Market Intelligence for the United Soybean Board, concurs about the significance of agricultural and export infrastructure.

“Infrastructure, whether we’re talking about moving product within the country or getting products into those export channels to be circulated around the world, it’s absolutely paramount,” he said, explaining that infrastructure vulnerabilities can create disruptions and bottlenecks, impacting the flow of U.S. commodities into export channels.

But infrastructure is only one part of the trade story. According to Marshall, the impact of tariffs and retaliatory tariffs can wreak havoc on U.S. exports like soybeans. Such was the case several years ago when trade tensions between the U.S. and China hit a high.

“Overnight, we lost a significant market and had to find alternative sources for our soybeans,” Marshall said. “That market didn’t just go away. China still needed soybeans for making cooking oil, soybean meal for human and animal consumption. They just found alternative sources, buying more from Brazil, Argentina, and other countries.

“We’ve seen some improvement in US-China trade relations over the last couple of years, with some tariffs being lifted or reduced, but there are still challenges we’re dealing with. Looking forward, it’s important to continue focusing on rebuilding trade relationships, improving market access, and reducing barriers to trade. Ultimately, that’s what’s going to drive demand, support prices, and the overall industry. It’s a complex issue without a simple solution, but we’re actively working on finding ways to improve that situation.”

While China has made a comeback as a buyer of U.S. soybeans and corn, concerns about China’s declining population and economic health are valid points to watch in the long term, Marshall added.

“This highlights the importance of exploring opportunities in other regions, such as Southeast Asia, Latin America, and Africa, where significant populations and growth potential exist,” he said, indicating that efforts conducted by the U.S. Soybean Export Council and others are taking root in those regions.

The agricultural economy can be a bumpy road, but through innovation, optimism and a spirit of resilience, America’s farmers are poised for the challenges and opportunities that lie ahead. Stratovation Group can help your company or organization strengthen your connection with farmers through research-informed strategies and consulting services. If interested in hearing more connect with Cam Camfield at [email protected].

Next up Part Five: Value-Added Holds the Key to Engine that Drives Success for U.S. Agriculture