During a recent webinar, a producer asked, “Is the agriculture industry in for another super cycle and does it have economic legs?” Super cycles in agriculture are very uncommon. There have only been four super cycles in the past 100 years, each with a duration between three and five years. This period of growth, like many super cycles, is a result of a convergence of events.
Government fiscal policy and stimulus injections into the global economy amounting to 14% of the $84 trillion world economy have been a major factor. This, coupled with an accommodative monetary policy from central banks around the globe, has led to inflation in most commodities and inputs.
The second factor has been China rebuilding its protein sector, particularly pork, and modernizing other sectors in agriculture. This demand for commodities and adverse weather in major growing regions around the world has resulted in corn, soybean and wheat prices not seen since the last super cycle a little over one decade ago.
The jury is still out on whether this mini super cycle has “economic legs” to sustain itself. High prices tend to cure high prices. Over the next 12 months, pay close attention to South America and Eastern Europe. Each of these regions has a considerable amount of resources that can quickly convert thousands of acres of productive grazing land into grain production, impacting supply and demand balances worldwide.
Next, the amount of time for the latest technology to be interspersed into various regions of the world has decreased immensely. I recently visited with a group of South American producers who indicated that they have access to the same technology produced by the major global implement dealers at the same time that we do here in North America. The same can be said for seed and other production-enhancing technologies. Historically, the gap was two to three years. The shorter time period for the technology to be implemented can wreak havoc on sustained prices.
Closely watch the green or carbon payment movement that will gain momentum toward the middle of the decade. Will this bring incremental profits to the agriculture sector? Which practices and enterprises will it impact and benefit the most?
Finally, strong global economic growth is a prime factor in the equation to sustain super cycles. The impact of inflation and possible slow economic growth could result in stagflation, which was present in the late 1970s. Stagflation is a factor to think about, particularly considering that it contributed to the end of the 1970s agriculture super cycle.
At the time of this article, this mini super cycle is on government and central bank steroids. The other factors mentioned in the article will impact whether growth is sustained to result in the fifth super cycle. This appears to be very questionable moving toward the future.
Ag Economist Dr. Dave Kohl
Dr. Kohl is Professor Emeritus of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Polytechnic Institute and State University. Dr. Kohl has traveled over 8 million miles throughout his professional career and has conducted more than 6,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA, and regulators, as well as producer and agribusiness groups. He has published four books and over 1,300 articles on financial and business-related topics in journals, extension, and other popular publications.