Retiring director of the U.S. National Economic Council Larry Summers said, “I think that when somebody writes the history of our time 50 or 100 years from now, it is unlikely to be about the Great Recession of 2008. It is unlikely to be about the fiscal problem that America confronted in the second decade of the 21st century.
“It will be about how the world adjusted to the movement of the theater of history toward China. At the most rapid rate in U.S. history, our standards of living were doubling about once a generation – about 30 years. Standards of living in China have, for 30 years now, grown at a rate where they double every decade or a little bit less.
That is a rate of growth for a share of humanity that is unprecedented. I don’t think it will, but if China grew at 10 percent a year for another 40 years, it would have 40 percent of global GDP.
“Ultimately, there’s going to be one thing that’s most important, and that is going to be how the world sees the power of our example.It will be the power of our example and the power of our economy that will ultimately be this challenge.
And that’s why, frankly, the question of how the United States relates to China in this world and what our example is, is so much more important than the question of how the media relates to Washington or even the question of how Democrats relate to Republicans. And it is the Central American challenge going forward.”
The U.S. stature in the world is not declining. What decisions are made now will dictate our preeminence in the world 25 to 50 years from now, but our fate is not predetermined and is still within our ability as a nation to determine ourselves.
The world economy can be described as the rise of the others relative to U.S. dominance the last century.
China is being led by experienced technocrats. U.S. leaders typically have law degrees while Chinese leaders are studied engineers. Engineers plan, organize and build. What do lawyers do?
Economically engineered growth is not isolated to China. All of Asia is expanding economically while India is on a trajectory to pass China in population growth.
The Mosaic fertilizer company wrote, “Global population is projected to increase from 6.7 billion today to 7.6 billion by the end of the decade and to more than 9.0 billion by 2050.”
Global population currently increases about 75 million people per year – the equivalent of adding another Ethiopia to the world each year.
Based on IHS Global Insight forecasts, global GDP per capita in 2005 dollars is projected to increase from the Great Recession low of $7,200 to more than $9,300 in 2020 and to about $18,700 by 2050.
Statistics show people spend a large percentage of the increase in income on protein -rich food and more grain intensive food such as meat, eggs and dairy products, as they move from low to moderate levels of income.”
Global demand for the leading grain and oilseed crops is projected to increase from about 2.6 billion tonnes today to 3.1 billion tonnes in 2020 and to more than 4.5 billion tonnes in 2050.
In fact, demand growth has accelerated despite the Great Recession and lingering fears about the global economy. Demand has increased at a 2.2 percent per-year clip during the last five years compared to a 1.8 percent per-year pace during the first half of the last decade.
Grain and oilseed demand is fueled by three key drivers. These include:
- Steady population growth.
- Increases in income and the upgrading of diets by a swelling middle class, especially in the populous and rapidly developing countries of Asia.
- The expansion of grain-based biofuel’s production, particularly the exponential growth of corn-based ethanol output in the United States.
Given this positive demand outlook, the challenge for farmers around the world is to produce another 500 million tonnes of grains and oilseeds per year by the end of the decade – equal to another U.S. harvest – and to boost global production by more than 70 percent by the middle of this century.
This challenge will require enormous investment of capital into agriculture in order to build the capacity to produce food, fuel and fiber for the future.
Markets have to provide the fertilizer of financial incentive to producers to generate the investment necessary in the sector.
In the 1980s and 1990s with global commodity production capacity having been inflated in the 1970s bubble, U.S. consumers enjoyed an abundance of overproduction with the world market to themselves absent of competition. Consumers did not understand nor appreciate the buyer’s market for commodities that existed then.
The opposite condition exists today and the bubble of agricultural asset values is the market working to capitalize more production in order to fill unprecedented growth in demand.
There is a reason why this has become known as the commodity super-cycle.
This cycle of global commodity demand growth is unprecedented in human history. The market has more work to do.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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