If You’re in Agriculture,Get Out the Dartboard

by Dennis Sun

In the last month or so, some of those in the ag industry have seen rough times brought on by a number of reasons. In agriculture, like other industries, more certainty leads to higher profits, better planning, less stress and more sleep. 

To say our world is currently full of volatility is a true statement. Those in agriculture could actually make some planning decisions using a dartboard these days and come out alright. The risk is still there, as commodities and volatility don’t do well together. 

In the last month, due to the war with Iran, prices for oil, fertilizer and steel have all risen dramatically. Steel’s rise is caused by tariffs and higher cost of transportation.

I think the war with Iran is justified and it’s time for a change of leadership in that country. We can’t let Iran or North Korea have nuclear weapons. I just hope this war with Iran doesn’t go on for too long.

We want oil producers to make enough money to keep drilling, but high prices of oil hurt nearly everyone. People need to realize oil has to be at a certain price before drilling will start.

At the moment, uncertainty and volatility from political comments and rhetoric are having a negative impact on both producers and consumers. 

Congress and President Donald Trump are both trying to meddle in the cattle and beef markets, thinking it will result in lower prices in grocery stores. In reality, it will actually keep cattle producers and lenders cautious and, in turn, further delay the three- to four-year process of rebuilding the cow herd. 

To be fair, ongoing drought conditions across much of the cattle-producing states is a large part of the uncertainty felt at the bank and out in the hills.

Cattle feeders in the Southwest and Southern Plains want the government to open the Southern Border to allow Mexican cattle to come into the U.S. The government is reluctant because of the New World screwworm issue in Mexico. 

Some say bringing in Mexican cattle wouldn’t change feeder cattle supplies for several months.

Cattle producers are hoping for a thaw in the trade war with China. Currently there are no U.S. beef products going into China, but a year ago, the U.S. was exporting 15.3 percent of their beef exports to China. 

Currently, China has no agreements with packinghouses to process meat. It usually takes some time to get permits approved.

Trump canceled his visit to China this month because of the war, and I’ve heard a meeting may be held toward the end of May. We hope so – the Chinese love American beef and they are probably getting tired of chewing on water buffalo meat.

All of those involved in agriculture realize the risks and cycles of the commodity markets, but we must dwell on the positives, as they will come.