A conversation with…
Michael Swanson, an economist with Wells Fargo Bank who spoke at the 2020 Ohio Agribusiness Association Industry Conference
OCJ: You talked about how the three-point line changed the strategy of the game of basketball with the addition of an arbitrary line added to the court. Coaches, players and teams all had to adjust their game plans to account for the change and those who adapted most quickly and effectively had the advantage. Agriculture certainly has some similarities. What are they?
Michael: Every day someone is drawing a new three-point line on our court. It could be a regulatory three-point line. It could be a technology three-point line. Either way, it changes the game. Agriculture used to be a labor-intensive industry and now it is an input driven industry. You used to be able to get up earlier, work later and out produce your neighbor. That is not always the case anymore. Right now we are at .6% U.S. population growth. Remember that number — the slowest U.S. population growth since 1930. We have corn yields improving at 1.5% every year — probably will for a long time. So we’re going to be deeper and deeper in corn and soybeans on an ongoing basis. What are we going to do with them? If we don’t have ethanol growing, where is it going to go? Either we have to put it in a boat and ship it overseas, or, I propose we should look at higher value-added livestock production.
OCJ: As we look to the higher value added livestock production, are we talking about meeting an international market value? Or is there that kind of demand domestically?
Michael: It’s going to be international. For example, in India, as they get better income they’re probably going to look forward to eating more chicken. That’s probably the primary thing we’re going to export to them. So, we want to develop those markets, and we want to meet those markets because that’s a lot of opportunity.
OCJ: Let’s talk specifically about the grain side of things, is there any particular grain you see a better future you see in the next few years?
Michael: There’s no short answer. Here’s the reason why, it’s because every market is connected by that relative price. The average price ratio between soybeans and corn is 2.5. Between the yield and cost structure, you have 2.5 times the price of soybeans. We just have too much of everything.
OCJ: Is there a better livestock market right now as you see the next 12, 18, 24 months?
Michael: No. Unfortunately once again, you’ve got this whole problem. Cattle — you need feeder cattle, and it’s tough to produce calves. So we’re not going to grow the cattle market a lot because that’s tied to the number of feeder cattle. We have a lot of chicken right now, we have a lot of hogs right now and both those markets are big dynamic players. They anticipated more growth, they’ve already put the pedal to the metal.
OCJ: As you look at serving the local market, is anybody doing a really good job that we could use as a model for others?
Michael: There are a lot of companies; and that’s called market segmentation. You know, you’ve got the Whole Foods of the world, but you’ve also got your Dollar General stores of the world. As I point out to reporters out there in New York and L.A., there’s around 500 Whole Foods in this country. There are like 30,000 Dollar General and Family Dollar stores in this country. So there’s demand for high end, locally sourced, yuppie food in this country. But there’s also a lot of demand for conventional “I need to feed my family” food.
OCJ: Where should young people be pursuing opportunities as you look at all of this big picture senario?
Michael: You know agriculture, like the rest, is a team sport. So technology change is only going to accelerate. If you are able to help people adopt technology and adapt it to their own usage, you have a great future. Because, there’s an awful lot of big producers who don’t have time to fiddle around with technology and they need someone they can trust. So, learn technology, be good at adopting it and adapting it to the local need, and you’ll have a job for the rest of your life.
OCJ: What role will the government play in this and should we have more of an influence in that?
Michael: You know I’ll say what a lot of people say. We need to have a common voice going to the legislatures at the state level. And what we have to be is reasonable. We have to say, “Give us reasonable standards, and don’t change the three-point line.” If we get that, we’ve got all we can ask for in this world.