Ag volatility the new normal?
Tight grain supplies and high price volatility (for both crops and the inputs required to grow them) have paced the corn and soybean business in the last few years, begging some to wonder whether those conditions comprise a new normal in the industry.
One agribusiness leader says that's exactly the case; in fact, it calls for farmers to adapt to a new world of agribusiness in which tighter supply margins and volatile pricing will be the norm.
"Thinking about my lifetime, I remember the last big ag boom in the 1970s. I remember how great it was then, then how scary it was going from tremendously high land prices to the 1980s with farmers going out of business," says Mary Shelman, director of the Harvard Business School Agribusiness Program. "Is this economically profitable time one of those momentary things that's going to go away, or is it a long-term trend? I'm quite convinced this is very much a fundamental change in the growth cycle of this industry, not just in the U.S., but on a global basis."
Shelman, who grew up the daughter of a machinery and implement dealer in Kentucky, says the biggest driver of this "new normal" will be the demand for grain in developing parts of the world; that development is likely growing into a new market fundamental that won't go away.
"In particular, we see the growing demand coming in new markets, particularly China, India, Brazil -- these are fundamental changes, and they're not going to go away," says Shelman, who's joining ag leaders at the Global Agribusiness Summit on March 13 in Decatur, Illinois. "That really pushes up the demand side in a time when productivity gains haven't been made as fast as changes in demand."
Part of keeping up with the growth in demand on the horizon, Shelman adds, will be the ability to roll with increasing volatility in all ag market sectors, whether in grain prices netted by farmers or those paid for crop inputs.
"In the future -- five, 10, or 40 years out -- I'm very optimistic, but there are going to be challenges," she says. "Volatility is going to be something we'll live with, and we need to think about new risk-management tools."