Adapting to the Global Market: Why Local Events No Longer Dictate Ag Prices

Adapting to the Global Market: Why Local Events No Longer Dictate Ag Prices

Author: Chris Kalkowski, Vice President, Agribusiness Banking

As many fairy tales begin… Once upon a time, if a major weather event damaged crops in a region, crop prices would react. In today’s larger global market, the world extends far beyond what farmers can see from their back porches. 

Transportation has improved through the years, and the market has become more efficient at moving products from one place to another. Demand will be met by pulling grain from another area to meet the need. What happens in even the most remote corners of the world can impact agriculture demand, and logistics will move products where they are needed, globally.

Consider the Shifting Agricultural Landscape

Agriculture is rapidly changing, and farmers and ranchers need to adjust expectations accordingly. Agribusiness today is a fluid orchestration between producers and buyers. Demand is no longer localized, and the market is adept at moving product where it needs to be. As a result, a locally damaging weather event, or other significant impact, no longer necessarily equates to substantially higher prices for farmers.

This extends beyond U.S. borders and row crop farmers. Fifty years ago, the United States was the largest producer of pork. Today, that honor goes to China, a country that generated nearly 58 million metric tons of pork products in 2023.

However, a 2020 outbreak of African Swine Fever resulted in big pork losses for Chinese farmers. While the event increased demand for pork imports to China, American farmers saw a somewhat short-term affect on their profitability, as the market moved product to where it was needed. China quickly moved to build its production back, and U.S. pork producers got caught with excess hog inventory, driving prices and profitability down.

Even this rather sizable supply impact in the global marketplace had limited long-term structural shifts in demand for pork, which has remained relatively constant.  Globally, farms increased production to meet the demand until it was met. Then the market signaled that too much production was happening and affected profitability until it forced cuts in production to balance the supply with demand.

The impact of this whipsawed pork producers. 

Adapting to the New Marketplace

The global market, combined with more efficient transportation and production methods, make agriculture very efficient at filling voids when necessary. As a result, farmers can no longer anticipate long-term pricing advantages in the face of localized events. 

It becomes more important than ever that people in agriculture build strong balance sheets to ensure they can withstand the cycles that affect their business.  When times are good, producers need to retain working capital to ensure that they can withstand the events that are happening well beyond what can be seen from the back porch.

The thing to keep in mind is this: Every year some farmers get rain and some experience drought. Others may encounter hail damage or flooding. Because of ag’s global market, rarely will there be impacts large enough to cause widescale pricing disruptions that create lasting effects.

At FNBO, we've been supporting agribusiness for more than 165 years through advice, insight and long-term relationships.  We understand agriculture and its cycles.  We are successful when our customers and communities are successful. Connect with a banker today to start a conversation about how you can continue grow as agriculture’s global market evolves.

About the Author

Chris Kalkowski has been at First National Bank of Omaha since 1998 and a member of our agribusiness banking team since 2003. As Sr. Director of Agribusiness Banking, he works closely with agribusiness leaders throughout the Midwest. In his spare time, Chris enjoys hunting, ranching and giving back to his local community.