DAVID KRUSE speaks to a near capacity crowd Feb. 16 at the Northwest Iowa Ag Outlook in Spencer. His overall message cautioned farmers to prepare for a another year of tight margins, and he said it could take a weather event somewhere in the world to turn the grain markets around.

By KAREN SCHWALLER

“mailto:kschwaller@evertek.net”>kschwaller@evertek.net

SPENCER – If ethanol and the Renewable Fuels Standard are allowed to work within a fair market, farmers would have no need for federal Agricultural Risk Coverage.

That assessment is from David Kruse, president of CommStock Investments, in Royal, who packed the house Feb. 16 as he expressed his opinions on world agriculture issues at the Northwest Iowa Ag Outlook, in Spencer.

He said the RFS must stand firm in Iowa.

RON EGERTSEN, a Laurens-area farmer, visits with David Kruse following Kruse’s presentation at the Northwest Iowa Ag Outlook. Egertsen said while he doesn’t always agree with Kruse’s opinion on farm issues, he finds it interesting to hear what he has to say.

Kruse said agriculture affected elections on caucus night, as Sen. Ted Cruz, R-Texas, opposing the RFS, won with a relatively small percentage of the vote – 28 percent.

Kruse said 80 percent of the votes cast for all other candidates, excluding Sen. Rand Paul, R-KY, supported the RFS, and that in Sioux County, Cruz won with only 33 percent of the votes, and won by only one percent.

He added it wasn’t a landslide victory, but that people in Iowa need to vote for agriculture in the presidential election, set for Nov. 8.

“The RFS is an anti-trust provision,” said Kruse. “The RFS does mandate a particular level of ethanol be blended into gasoline, but at the same time we’ve always produced more than that.”

“It wasn’t forcing more ethanol into the market,” he added. “It helped disallow the oil industry/petroleum industry from black-balling ethanol … and with that inability to do that, it allowed the market to work. We’ve been using more ethanol than the RFS has called for because the market has wanted that.”

Kruse said the RFS has a major impact on corn prices and on economic success in Iowa and contributed to one of the most significant increases in wealth creation in the state, including through land values, that he has seen in his lifetime.

Prior to ethanol, he said corn demand was feed and exports. Ethanol created another value.

Kruse said grain producers could survive without ARC payments if the ethanol industry was continually growing and thriving, with higher blends being made and used consistently.

World economy

He said the world is on the brink of an emerging market debt crisis, with China leading the way at $28 trillion of debt, most of it being added since 2009.

China put out a massive stimulus to keep its country growing, but it left them with overextended debt.

“They’ve also had massive domestic stocks of corn, much of which was going out of condition, so instead of using their strategic reserve, they needed to shrink it and move it into the market,” Kruse said.

He expects China will import almost half as much corn this year as it tries to reduce its domestic corn supply.

The corn price in China has fallen from $9 per bushel last year to $6.50 this month.

Kruse said to keep economic stimulus going, the world central banks issued $23 trillion in quantitative easing funds, and that 80 percent of those banks are at a zero percent interest rate. He said 23 percent are in negative interest rates.

“We’re into some unchartered territory as far as the economic impact of this thing,” Kruse said. “When you go to a negative interest rate … if there is no return from putting money in the bank, does it go into the mattress?”

“There’s a dramatic difference between (investing money and stockpiling at home) and how it impacts the economy,” he added, “one of which would be helpful or stimulative, and the other would be depressive to the economy.”

Kruse cautioned farmers that the $90 per acre ARC payments received this year could fall off sharply for next year, if they exist at all.

“A lot of things have to happen between now and next year to find a way for the market to restore that $90 that’s been getting us by,” he said.

Kruse added the western world demographics indicate a movement toward retirement, especially in Japan, using up the wealth they created when they were younger, instead of spending it or generating new wealth.

He said it’s a large reason why Japan’s economy is struggling today, and that it’s something indicative of what will be happening around the world.

Kruse added gold prices have soared in light of negative interest rates and talk of continued lower interest rates and that indicators show that when more than 20 barrels of oil can be bought with an ounce of gold, it’s a warning sign for a recession.

“When you look at the world situation today and the turmoil that surrounds all currency,” Kruse said, “the U.S. dollar has been the cleanest dirty shirt in the laundry basket, but it’s not exactly fresh.”

“Gold hasn’t offered any returns, but there isn’t any returns when you put your money in the bank either. Now when you have zero percent interest rates and negative interest rates, gold is starting to make sense to me.”

Trade issues

Kruse believes that agriculture is not poised for another depression, saying producers are not leveraged like they were in the 1980s; there was no ethanol demand then, there was no farm bill to speak of and no crop insurance.

He did caution, however, that the ag arena is not as solid as it could be, with many interests “chipping away at it,” such as eliminating the RFS, which he said would be one of the worst things that could happen.

Kruse said farm families should be concerned about presidential candidates’ stands on trade and political protectionism.

“Iowa is a net surplus on its trade – it contributes much to our economy,” he said, “but protectionism would add more than a head wind to what we’re seeing today” in terms of the U.S. dollar’s strength working against its people in trade and exports.

“We’ve seen that impact on our corn and livestock markets just from that alone. I see this as a great threat – maybe as great as what the loss of the RFS would be to the ag sector.”

He went on to say that building a wall to close the border into Mexico could have a devastating impact on U.S. trade, with Mexico being the U.S.’ No. 1 corn and pork export buyer and No. 2 in beef purchases.

If the U.S. puts a 35 percent tariff on products going across the border, he said Mexico will look elsewhere to purchase those products, creating a massive economic recession, if not a depression – massive retaliation and maybe even trade wars, especially if those kinds of tariffs are used with China and Japan, Kruse said.

He said plans to deport Mexican immigrants would create an ag crisis in the U.S., with 70 percent of all ag workers coming from Mexico.

It would also create chaos in Mexico with the results of high tariffs placed on products coming into the country, according to Kruse.

He added the U.S.’ greatest advantage is its infrastructure, which allows U.S. farmers to get their product to the world market much more efficiently.

If he were a trader from China or Japan, Kruse said he would invest heavily in South American infrastructure.

“If those trade policies were to happen, we would be very much on the short end of the stick,” Kruse said. “Though there’s probably more to it than he’s saying, if you take what Donald Trump says at face value, it would be the most devastating thing that would ever happen to agriculture – worse than losing the RFS.”

Weather and grain

Kruse said a major weather event could help improve the markets. He said ethanol producers are not making money with cheap corn, and the petroleum industry has changed.

“The price of unleaded gas is now 45 cents under the price of ethanol-a complete reversal of this historical price relationship,” he said, adding that under those circumstances, the main reason to continue using ethanol is because of its octane value. “We’re going to be dependent on octane for demand.”

“The current economics of the ethanol industry do not support the current corn market, let alone, where we’d like it to go.”

Kruse said a summer drought is possible, but not probable at this point, and said there could be a relationship between the ice cover on the Great Lakes and the kind of crop year experienced in the U.S.

Records show that when ice on the Great Lakes is high, U.S. farmers experienced at or above trend line yields, and vice versa. He also said there has been a marked increase in heavy downpours of rain, showing that climate change is happening.

According to Kruse, the U.S. saw significant carry-over in soybeans and he believes exports and crush are both highly overestimated, but he doesn’t see reduction in soybean acres happening.

He concluded by saying the only way to produce enough food to feed 9 billion people by 2050 is through the use of genetic modification technology.

“There has never been any documented proof that anyone has been harmed by GMOs,” Kruse said. “Yet we’re supposed to reject all that technology.”

“What it will do is starve people in the world because we can’t keep up.”

He encouraged producers to continue to speak up and tell their story.

“Agriculture is a proud industry from the standpoint that all of our human advancements are based upon this segment of the economy,” he said. “And if we don’t speak up for ourselves, who will?”