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AFF Sentinel V20#35-The Reach of World Ambitions

No Country Is An Island Either*


Steve Dittmer | AFF Sentinel

Colorado Springs, CO

Originally sent to subscribers 07/29/23

Two factors figure prominently in shaping American agriculture these days more than ever. Everyone’s economy is interconnected to varying degrees around the globe and powerful leaders’ ambitions shape those economies through culture, trade and government actions.


The former factor happens faster and with larger impact today than even a decade or two ago. The latter really hasn’t changed much in man’s history. The players change but leaders’ hunger for power and influence remains the same.


Right now, Russia’s Putin has affected humans’ very lives in Ukraine, the food supply and prices of grain globally and relations with governments in Asia, Africa, South America and Europe. China’s Xi is finding his friends a bit fickle and his partners in his Belt and Road initiative pulling away.


Putin’s moves are the first drivers in the moving panoply but China is not far behind. Putin’s pulling out of the agreement to allow grain shipping out of Ukraine through the Black Sea has serious implications for countries normally dependent on Ukraine grain supplies in Africa, Turkey and even China. Supply restrictions affect the price of grain worldwide, especially wheat. Anything affecting Ukraine’s grain shipping is a major blow to their own economy. Putin and Xi are supposed to be great friends, but China normally gets a quarter of its grain from Ukraine and a quarter of its corn. Russia will profit from the higher price of grain, partially at China’s expense.


Europe has paid, and will continue to pay, a big price for its dependence on Putin for energy. The price of natural gas and food has not escaped the notice of Europe’s citizens. Eastern Europe has had the added pressure of being close to Ukraine’s war and the influx of millions of refugees from Putin’s aggression.


We’ve written extensively about China’s Belt and Road initiative in the past. China has been intent on building infrastructure like railroads, pipelines, ports and roads in countries around the world, providing the estimated $1 trillion in financing and the construction for countries that couldn’t otherwise afford it. The funding came with strings as well as huge payments. Not all countries have been happy with the deals.


Xi’s grand plan to remake the global economy with China at the center of it all has become more obvious and more disconcerting to countries. One international observer noted more countries seeing the Belt and Road initiative as “a vehicle for spreading Chinese influence abroad.” Xi is planning a big Belt and Road celebration event this fall but many countries are not planning to attend, especially some European countries also wary of expanding economic ties with China. The European Commission’s President has commented the “Chinese Communist’s clear goal is a systemic change of the international order with China at its center.”


Putin has decided to make nice with countries in Africa, pledging free grain, forgiving billions in loans and helping to develop their agriculture. No one’s sure where Putin is going to get that kind of money, given Western sanctions on many of his exports, the expense of his war in Ukraine and his embattled domestic economy and currency. The strengths of economies in China and India and the price of oil will affect his coffers, as much of his oil goes to those two countries.


Our situation here is complicated in that while companies are trying, with some difficulty, to extract themselves from high dependence on supplies of raw materials, manufactured goods and other supply chains from China, U.S. agriculture sells lots to China. The beef industry has gone from no exports to China a few years ago to that country taking significant export volumes today. Both China’s economy, slowed significantly from Covid lockdowns, and the always uncertain policies from a Communist party’s dictatorship affect their demand for our beef and, of course, pork.


We’ve been used to China’s GDP growing in the high single digits. Last quarter’s almost no growth was a surprise to most everyone. How fast and how strong the country will rebound from its lockdowns in the next couple quarters will be a major question. As we’ve learned the hard way, government imposed shutdowns have far reaching and long lasting implications. It’s never happened before and no one knows how long the ripples through the economy, the culture and politics will last.


China’s leadership has to have watched our mismanagement of our economy and perhaps learned a couple things. Observers have seen the government reluctant to pump too much money into the economy, having seen our inflation disaster plain as day. Our country’s business pull back has to be affecting what was just a couple years ago, the world’s manufacturing floor. But very slow growth, a huge population to feed and their military buildup has to be putting budget pressures on the CCP.


The interplay between weather in the Corn Belt; the war in Ukraine and Putin’s war on the Black Sea ports and shipping makes grain supplies and pricing a tough challenge for feedyards. We’re guessing smaller yards who can raise much of their own grain are sleeping better at night than major players who depend on someone else’s grain. Contracting for a supply that Mother Nature smiles on is not as easy. Worse than usual, is that the extremely hot weather this year came at critical times for pollination for this year’s crop.


While everyone concentrates on running the business at hand, movements we can’t control far away still have significant implications for all of us.


*A play off the words of John Donne, English poet and clergyman: “No man is an island.”

 

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