Demand for U.S. soybeans will continue to go up and Brazil can't compete, says strategist
Ahead of the 2021 Land Investment Expo on January 12, geopolitical strategist Peter Zeihan shares his thoughts on the global trends affecting agriculture, land values, commodity markets, and politics. Buckle your seat belt.
SF: What are your predictions for the COVID-19 pandemic in 2021?
PZ: The virus won’t go away until 80% of the population have either had it or had the vaccinations. We will have four vaccines in production and start mass inoculation of the population by April 1. The Johnson & Johnson vaccine is the one I am really interested in because you only need one shot, and it doesn’t require freezing. Everyone who wants to get vaccinated will be by June.
We can then start talking about the economy repairing, because we will have been offline for more than a year. It is a real recession with real damage. We can start getting back to what I call normal in September. That is too late for the global system.
SF: How has the pandemic affected demographic and economic trends?
PZ: For a lot of countries that had rapidly aging populations, they will flip into mass retirement a year from now. The older, consumption-led economies are becoming export-led. The export-led economies are becoming post-growth. This is the end of globalization, right now. Most countries will never get back to where they were in January 2020.
For agriculture, it means sales to China have peaked and they will only go down until there is a collapse of the Chinese communist system. That could be in one year or five years, but it will happen.
The Chinese have decided that they will never purchase any American goods ever again if they have a choice, particularly agricultural goods. The patterns we have become used to in the last 40 years are gone and it’s time to learn what the new world is going to look like.
SF: Who will be the winners in the global food market?
PZ: It’s going to depend on which products you are in. If you bet the farm on China, you are going to lose the farm. I warned you about that last year. If you have people in China, it’s time to bring them home because otherwise they will be arrested, and you will never see them again. We are at that point. This is the year that this all happens.
Many countries that are significant competitors for American agriculture will face problems because we are looking at capital breakdown at the same time we have a supply breakdown. The U.S. doesn’t have to worry about that. Our capital structure and supply chains are more stable. On the production side, I don’t have any concerns.
The problem is who you sell to. China is gone. The UK has 66 million customers who are about to lose access to one-third of their food needs when they leave the EU. Another third of their food needs are not competitive with American ag, so ag will be at the core of a UK trade deal. We have the UK, Mexico, Japan, and Korea, but after that you are going to have to find new markets.
SF: Land values continue to go up. Do you see that continuing?
PZ: I don’t want to draw a straight line, but I would expect that trend to continue. The more disruption we have in the international system and the more difficulty we have in the global supply chain systems in agriculture, the better American ag is going to look in comparison.
The country that benefits the most from global collapse is the United States because our system isn’t dependent upon it. If you are Belgium or Thailand, you try to get your money where it is safe, so you go to the U.S. The primary destination for that capital flight has been residential real estate and U.S. T-bills, but everybody wants a chunk of American ag land. It doesn’t have turnover and there is no open market for it. I have every confidence that higher land prices will continue.
SF: Let’s talk about trends in ag commodities.
PZ: What is true for pork is not true for soy. The biggest negative is pork. The only reason we haven’t seen a collapse in pork prices is because of African swine flu in China. They lost half their herd. That takes 18 months to rebuild and we are now halfway through. We are their last option for importing pork. As the herd recovers in China, U.S. pork exports to China are going to go to zero.
The U.S. herd is too big. Every producer needs to cut by 30%. If you don’t do that, you are looking at mass bankruptcies across the entire sector. We have built up for a market that doesn’t want our pork.
SF: How about corn?
PZ: As an animal fodder it still has a market out there, but that market will shrink as the Chinese recover. The Chinese are going to be eating a lot less animal protein.
In addition, the political coalition that made ethanol part of the fuel mix is gone. The national security conservatives and the environmentalists have turned on it, so it is just the farmers and farm states. That is a powerful group politically, but not enough to sustain it. We are going to see incremental increases in the efficiency of the ethanol process. For every 2% efficiency gain, that is 2% less corn we need. The market will shrink over time. If companies ever crack switchgrass, the corn ethanol market will be over overnight.
SF: What about the future for soybeans?
PZ: I expect soy demand around the world to go up, up, up. In a poorer world where people can’t afford animal protein, soy is the only solution that can be produced in bulk.
The more problems Brazilians have, the more room there is going to be for U.S. soy. Brazil is a high-cost producer. If there are any supply chain problems anywhere in the world, Brazil gets hit. It is the most expensive production out there. Brazil is not a long-term competitor. That doesn’t mean it is going to collapse this calendar year, but it will collapse.
SF: How about wheat?
PZ: Wheat will probably see the biggest price appreciation. The Russians and Ukrainians produce one-third of global wheat exports. There is going to be a lockdown between the Russians and the Europeans before long, and Russian wheat is not going to make it to market. If you are a U.S. wheat producer, you are going to have to do absolute nothing, but prices will bubble.
SF: Any positives for beef?
PZ: Beef is a bit more mixed, but still broadly positive. The Japanese and the Korean demand is stable to declining as the demography ages. Mexico is well positioned to pick up the rest. I see no reason why Mexico will not economically do very well in decades to come. In Mexico, beef is the first protein you go for when you have money, unlike China, where pork is a luxury product and something you cut from your diet in hard times. Mexican beef is nasty, and they prefer American beef. British beef is also wretched. Most of the beef consumed in Great Britain comes from mainland Europe, and that is going to stop. The U.S. gets two big beef consumers.
SF: Let’s talk politics. What will change with the Biden administration?
PZ: It’s been 20 years since the Democrats have had any expertise in running a government. After Clinton, we had eight years of a Republican presidency. Then we had eight years of Obama, who refused to rule. The presidency is not the best place for on-the-job-training, but the last 12 years has been that over and over.
Business voters are now out of the Republican Party. Trump ejected them all. They are not in the administration, they are not in Congress, and they are not in the party itself. Business voters are now swing voters.
On the Democratic side, the unions have switched sides and are now with the Trump Republicans. The socialists have been ejected from the Democratic Party apparatus and are furious. They look at the people Biden has picked and not one of them is from the edge. They are all centrist and some of them are even former Republicans. The unions, the socialists, and the hard left are all gone. The Biden administration appears to be trying to bring the business community into the Democratic coalition.
On the Republican side we get an evangelical, pro-life, populist, union, Hispanic coalition. On the Democratic side you have the urban voters, the business voters, and the greens.
SF: How could this affect U.S. farmers?
PZ: Nobody in the Biden cabinet cares at all about foreign affairs. That could be a problem for agriculture, because all of a sudden you have lost the group that used to do the lobbying for you, and the new coalition is really not interested. With the possible exception of the United Kingdom, there aren’t going to be any American efforts for trade deals. You are going to lose China. You will probably gain the United Kingdom.
SF: Any final thoughts on politics?
PZ: I think Biden will be a good president. He’s likeable, and that matters. I consider Trump and Obama two of the worst presidents in American history. Obama understood everything about how the world worked, how all the pieces moved, and where to pull a string to make something happen. He just never did anything, because he hated talking with people. He understood, but he was damned if he was going to act.
Trump is the opposite. He’s offended by the very concept that he might need to understand something, but he’s going to Tweet about it. They are two sides of the same coin, of the same pointless strategy.
Biden is more likely to use the tools of power. We should see more activity and more progress on a lot of fronts. The problem is we don’t know what they are, because Biden has never in charge of anything before, and most of his cabinet secretaries have ever been in charge of anything.
SF: Will Trump have an influence on the world stage after he leaves office?
PZ: He will try for a little bit, but he will lose his media platform. Twitter has said if he tries the stuff he’s tried as president, they will ban him. The media won’t be hanging on his every word and he can’t reach the world on Twitter. He would be the oldest president ever if he ran again. I don’t think he has it in him. The degree of attention span required to maintain a presidential campaign is exhausting.
SF: You mentioned the media. What is the future for media?
PZ: Broadcasting is gone. It’s all narrow-casting. That’s both an opportunity and a problem. It helps you focus on things that are important to you, but it’s a disaster because not everyone is getting the same information.
This isn’t the first time we have had to deal with a technological revolution that changed the way we consume media. It took us 30 years to get libel laws the last time, and we don’t have libel laws for social media yet. I would love to think that this next Congress is going to deal with that. I am less than hopeful.