I was tasked with writing a summary of the ABA Ag Bankers conference in the past two weeks. Of course, we talked about outlook for the grains (not great), livestock (not great), and dairy (better than the last two years). There was, however, another more overarching theme from many presenters that should be shared from the conference: The Great Disruption.
We are in a time of real and palatable breaking up or interruption of everything. No more "normal." No more status quo. Disruption.
First, most will look back at the November results and agree that it was and will be highly disruptive to the status quo, regardless of politics. Dr. David Kohl said that our political structure is disrupted every 50-70 years, when our governments can't keep up with the people and their pace of change and their method of communication. They saw it with the Arab spring, then moving on to Brexit, to the U.S. election, and now all indications are that the EU may find itself challenged to remain intact. Think about those implications on the status quo.
Second we see it in the demographics. Baby Boomers are retiring, so will they keep their money in investments or not? And then there are the Millennials. We all know the stereotype by now. They are already impacting the workplace with different outlooks on tenure and expectations. And we have all experienced their expectations as bank customers: they want service when it counts, otherwise leave them to self-service. But what isn't so readily understood is that because they have enormous student loan debt they are getting married and buying houses (that are a lot smaller) later in life, putting a cap on new housing demand. And most intriguing is that all indications are that they demand an "experience" with food and quality, not necessarily quantity, and they are willing to pay up for it because they can't afford everything else. As someone said (facetiously): instead of a 50 cent bowl of ramen noodles from their microwave, they would rather stand in line for an hour for a $10 bowl of ramen noodles. Think about that: an experience with food. This has implications that companies like Hormel admits they are struggling with - but nonetheless following because that's where money is flowing. Instead of a singular path of commercial commodity production, there will be two: one based upon price/volume and the other based upon creating experience. And then we should talk about the convergence of health and food - the thought that they are inextricably linked with the other, is going to be the driver for foods of millennials and boomers alike. This disruption by all ages has huge implications on the types of food they demand, and how it was raised.
Third we have a disruption in the global economy. The rapid rise in the U.S. dollar has negative implications for exports. Further, if trade with other countries is disrupted, the "point guard" taken out historically has been agriculture. The rate of change of production of most commodities - not just farm, but energy as well, has and will continue to outpace population growth. Think about all the wind, solar, natural gas, and plains energy "created" in the past decade. Match that with seemingly exponential growth in productive capabilities of dairy and some crops. And we see why prices of almost all of them are low. We need to watch that carefully. Commodities need to find a home. Also, the unusually low rates of the past decade have created disruptions in allocations of capital in efforts to create a wealth effect and stimulate growth. And then we have the global growth leader moving from China to other underdeveloped countries with younger populations. Rates, the dollar, growth shifts, and trade will be highly disruptive.
Of course there are more disruptions happening than I've got space to write about. The conclusion is that the disruptions we're experiencing are not isolated to government, demographics, industries, or economics. They are all happening, and we and our customers need to be ready to capitalize on them. Now is not the time to be asleep at the switch.