The more people/more demand/higher price connection could be a long-term solution to ailing ag markets, says Scherr, president and chief executive officer of Sparks Companies in Memphis, and a speaker at the recent Mid-South Farm and Gin Show.
“Fifteen years ago, a World Trade Center event would have driven the oil, grain and livestock markets wild,” Scherr said. “But here we sit with agricultural markets sitting on a flat line.”
In addition, “the U.S. economy has been on its keister, and any recovery will be anemic at best. We have the lowest short-term interest rates in modern times. Yet our ag markets seem immune to these kinds of influences.”
According to Scherr, one reason for the lack of volatility, “is unseen pricing taking place off organized exchanges. We don’t always see the volatility.”
In addition, world trade markets have become more stable in recent years, noted Scherr. “In grain and soybeans, 10 to 15 years ago, we had a marketplace in the former Soviet Union that could take anywhere from five to 10 million tons of grain and oilseed from us in a given quarter. So we had a volatile buyer out there that represented 20 million to 40 million tons of grain and oilseeds in any given year.
“Today, our biggest-volatile consumer is China, which takes 5 million to 10 million metric tons annually. So we’ve traded off a large source of volatility for a smaller source of volatility.”
Cutting back on production in the United States is not a solution to the price problem, according to Scherr. “We don’t want to lose production to anyone else. And U.S. farmers can grow more per acre on than ever before. We are producing record levels of grain, cotton and oilseeds in this country. And we use it all up every year.”
But U.S. growers can’t continue to sell their products at unprofitable prices. “What we need are demand surges,” Scherr said. “But demand surges don’t come out of the blue. Demand evolves. It doesn’t change overnight.”
Scherr says demand surges typically come from a supply accident somewhere around the world. But these events don’t happen with regularity, especially recently. Many producers recall 1996, when China didn’t produce enough corn to export, “and all of a sudden we made it up 10 million to 13 million tons of corn that China used to give to Asia,” Scherr said.
One solution is to add more people to the U.S. economy, and thereby pump up our domestic use. “Our society is made up of about 275 million people and 95 million households. Over the next 10 years, we will grow to about 300 million people and 100 million households. That’s anemic growth, not enough to sustain the growth of our economy, whether it’s our agricultural economy or anything else.
“If you don’t have population growth and you can’t export your products, you become stagnant with nowhere to go, like Japan.”
Scherr suggests that the United States develop an immigration policy to, “strategically fill this country with highly productive, highly creative people that will earn money and spend money and be the foundation for agriculture.”
Scherr’s solution, which he spoke about during the Mid-South Farm and Gin Show recently, makes sense, but here’s another idea offered by an audience member in attendance — reduce the tax burden on young people in the United States to encourage them to have bigger families. Scherr agreed it was a good idea. And it certainly would be a lot more fun.