Yields

Summer 2022

Northwest Farm Credit: Rural, Real Estate, Operating Loans; Farm Loans; Country Home Loans; Lot Loans; Equipment Financing; Young and Beginning Producers; Crop Insurance; Business Management Education; Property Appraisals

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geopolitics The world is changing, perhaps radically, and agriculture is a part of the story. Will global agriculture experience immense challenges accessing inputs and consumers? In a recent geopolitical webinar offered by Northwest FCS' Business Management Center, Geopolitical Strategist Peter Zeihan says the answer is yes. But will American ag experience the same issues? Zeihan says not so much. summer 2022 8 Geopolitical impact on U.S. agriculture. Transportation Eighty percent of global agricultural inputs are transported by ocean-going ships. According to Zeihan, the U.S. Navy is "categorically unable" to protect global shipping lanes in important regions because they don't have enough of the right-type vessels. "The problem, of course, is that any disruption will have devastating affects up and down the entire supply chain, all the way to the dinner table," said Zeihan. "If a carburetor is delayed for three months getting to an assembly location, the car can still be finished with a delay of three months. But if a pesticide, fertilizer, diesel fuel or raw Sawyer refrigeration unit is delayed three months, much of the food product itself will be lost." Much of the world will have massive challenges accessing agriculture inputs and consumers. For the United States, however, only 10% of agricultural inputs are transported by ship. Most of its agriculture inputs and the supply chains supporting them are found within North America. Suppliers are local, and the two largest customers, Mexico and Japan, remain "easily reachable." Manufacturing and equipment Modern, large-scale agriculture relies on specialized equipment that requires specialized supply chains, making them imminently vulnerable to disruption. Zeihan predicts heavy machinery will see the biggest disruptions in terms of manufacturing for the next half decade. In response to trade policies implemented by former President Trump, automotive is well on the way to a 100% North American supply chain system. Unfortunately, heavy machinery decided to pay the tariff costs instead. "We still need about 1/3 of equipment components from other countries," said Zeihan. "While the disruption is only 20% to 30% for the U.S., there are places in the world looking at 100% disruption. So, what is an inconvenience and delay in capital purchases for U.S. producers is a systemic failure for the global competition." Energy With the narrative "fossil fuels are done" pervading the financial centers of the world, global investment into oil and gas has dropped by two thirds. Even if all goes well in the world, it will still take three to eight years for energy supplies to return to a price structure similar to the mid-2010s. But American output and production of fossil fuel energy is one of the very few that will not be constrained moving forward. "The United States is the only country where oil and natural gas production sites are relatively close to population centers," said Zeihan. "This reduces the lag time between new drilling and production coming online, well below the three to eight year average the rest of the world has to deal with. Because shale geology is so different from conventional fields, the production cycle for American shale is only three to eight weeks, or at least it was back in 2019 before COVID-19. Now, it's more like three months, and that's still loads better than three to eight years." "We are on the verge of a catastrophic reduction in the ability of the planet to grow food at scale, but it won't impact producers in the United States," Zeihan says. "Global competitors will be the ones most likely to experience the pain." Geopolitical Webinar Recording

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