So far, 2018 has shot off to a crazy, busy start for us here at Sprout Solutions (and it’s only April!). With new clients continually coming on board and our continued search for new office space, we’ve gotten good at keeping our heads down* and focusing on the goals we set out to accomplish at the beginning of the year.
*There have been times it’s looked more like we’re running around like headless chickens, but that’s for another blog 🙂
As the co-founder of Sprout, it’s my job to always have a pulse on new trends and new industry trajectories, but when I’m able to come up for some fresh air, I like to do a deep dive into how the industry is performing and what the future state looks like.
Exceeding 1 billion in feed production
Last year was a monumental one for feed production with feed tonnage exceeding 1 billion metric tons for the second consecutive year. In 2017, the international tonnage total was 1.07 billion metric tons, showing a 2.6 percent growth over 2016, and the $430 billion feed industry has grown 13 percent over the past five years. Alltech’s chief innovation officer Aiden Connolly shared:
“I imagine that we’ll continue to see feed being extremely central as an indicator of the economic growth of the world and its economic health.”
China and the United States were ranked in the top two feed-producing countries, followed by Brazil, Russia, Mexico, India and Spain. The U.S. in particular experienced a 2 percent growth rate, and feed prices in North America are lower than when compared to other regions. In the U.S. there are 5,715 feed mills and 517 pet food facilities, and five states in particular – Missouri, California, Texas, Pennsylvania and Iowa – topped economic measures by contributing 337,000 jobs and $105.2B in total sales.
What this means is that overall, the future is optimistic about the growth potential of U.S. feed, despite recent disease and weather challenges that were problems in the past. In 2017, a first-ever economic analysis study conducted by Decision Innovation Solutions revealed:
“Recently, improved environmental and weather conditions and a lack of animal disease outbreaks has led to animal populations largely recovering across the country. The current demand for feed is strong, which bodes well for the industry’s continued economic contribution.”
Tariffs set by new administration
So, if weather and disease are no longer a threat to a thriving feed-production industry (for the time being, anyway) … what is?
In March of this year, the Trump administration announced it would be imposing tariffs of 25 percent on steel and 10 percent on aluminum. Many fear these tariffs could lead to a large-scale trade war with an increased likelihood of countries like China, Russia and even Canada striking back.
As the commotion around these tariffs grows louder, it’s become evident that the agriculture industry will suffer. U.S. agriculture relies heavily on international trade and exporting commodities. For example, in the past decade, U.S. ag has relied heavily on China’s consumption of agricultural products and the soybean in particular. In fact, the U.S. soybean export to China was a major contributor to the farm economy boom, combating the farm economy slowdown the U.S. had experienced in previous years.
Let’s stick with the soybean example to paint a clear picture of the potential impact these tariffs will have. If China chooses to retaliate by imposing a 30 percent tariff on U.S. soybeans (slightly higher than the U.S.’s 25 percent tariff, Purdue University’s study for the U.S. Soybean Export Council estimates the following effects:
• 71 percent reduction in Chinese imports of U.S. soybeans
• 40 percent decrease in total U.S. soybean exports
• 17 percent decline in U.S. soybean production
• 5 percent decrease in the price of soybeans for U.S. producers
An escalating trade war would be detrimental to both the U.S. and China. “The annual loss in U.S. economic well-being would range between $1.7 billion and $3.3 billion,” ag economist Wally Tryner shared. “Chinese economic well-being also falls if they impose a tariff, in some cases as much or more than for the U.S. The reason for that is that soybean imports are very important to their domestic economy.”
Keep a pulse on the ag industry
As the U.S. experiences continued growth in feed production that’s favorably tied to not only the industry’s economic contribution but also America’s overall economic standing, it’s important to consider the impact these tariffs could have. It might have people wondering where the future of the ag industry is headed. While we don’t have the answers right now, it’s important to keep paying attention.
That’s what we’re doing at Sprout Solutions (when we aren’t running around like headless chickens). Check back with us for monthly reporting and real-time analysis on the industry’s latest, most relevant news and trends, from government impact to feed mills, feed production and commodity trading, imports and exports.
Gretchen Henry is the co-founder and CEO at Sprout Solutions, a full-service software platform that provides mills and merchandisers in the agricultural industry with accurate, Web-based tools and systems.