Preparing Next-Gen Farmers for ‘The Big Shrink’

For generations, farmers have grown to feed a growing world. What happens when that world begins to shrink?

That’s what Terrain’s executive head, Matt Clark, and senior animal protein analyst, Don Close, discussed on a Grain IQ podcast episode with Rural Radio Network’s Chad Moyer. They broke down what Terrain’s big-picture outlook for global food demand could mean for grain and livestock markets in the decades ahead.

(The following is a summary of their conversation.)

A New Paradigm for U.S. Farming

For decades, U.S. agriculture has operated under the “feed the world” paradigm.
In “The Big Shrink” series, the Terrain team proposes that we will slowly enter a new operating model that will focus on:

• Less bulk exporting
• More domestic and high-quality consumption
• Shifts in what we grow and where we grow it

“The Big Shrink” research is especially pertinent for the next generation of farmers and current farmers wondering how they can pass on what they have today.

Underpinning this shift is Terrain’s projection that global population growth will peak around 2065, which contrasts with the long-held belief that farmers will continue to feed a growing world.

Matt noted that “The Big Shrink” research is especially pertinent for the next generation of farmers and current farmers wondering how they can pass on what they have today. It aims to help farmers “make good business decisions for the long run.”

“There's always going to be paradigm shifts in ag, in any business,” Matt said. “This isn't doom and gloom. What's important to do is just to step back, be open, and think about, ‘OK, I want to transition my farm to the next generation and the generation after that.’”

“Start thinking about the little things you can do to position yourself.”

How It Plays Out

Don explained that as populations contract (a good example is China), our key export partners may be able to produce a larger percentage of their total food supplies, making them less reliant on imports.

“We are not going to need the bulk quantity of foodstuffs in the future that we need today.” This will likely lead to:

• A different distribution of U.S. planted acres
• Vastly different trade flows
• A greater need for the U.S. to produce more commodities for domestic consumption

Behind the Projections

The Terrain team’s research and population projections are supported by the natural fertility rate, or the number of births per woman. Don cited a fertility rate of 2.1 children per woman as what allows for a stable population.

“If you look at specific countries,” Don continued, “the U.S. is currently below 2. China is, you hear estimates it's as low as 0.8. Japan is currently at 1.5. Europe is below 2.”

(For a decade-by-decade breakdown of Terrain’s population projections and the regions affected, visit terrainag.com/series/the-big-shrink/)

Besides a declining fertility rate, there are other factors that support the idea of a paradigm shift for U.S. agriculture.

“For one, we could see large infrastructure investments in countries that are currently large importers of food,” Matt notes. “Possibly, you could have some of those scenarios, too, where they're growing a larger share of their own food.”

Matt also addressed whether rising incomes could offset the impact of shrinking populations on food demand. However, “ ‘The Big Shrink’ would argue that we're going to hit capacity somewhere out there. And when that happens, to Don's point, you really see that shrinking need, and that pie is no longer growing for everybody.”

“At that point, U.S. agriculture will look very, very different.”

What Does This Mean for Farmers and Ranchers?

Speaking about the livestock sector, Don mentioned the frequently cited challenges that cattle producers have in finding new grass, or of the availability of leases to expand the cow herd if they wanted to.

“One of the offshoots of ‘The Big Shrink,’ as we see the demand for conventional row crops contract, I don't necessarily think we're going to see a big acreage shift in Iowa and Nebraska and the states of the core corn belt,” Don said.

“But if you take the amount of corn and soybeans grown in those peripheral areas, I think those acres will ultimately contract. In turn, I think before this is over with, we will actually see grass and total grazable acres increase, and that will enable us to see increased cow numbers in the country.”

How will animal protein fare in a world with fewer people, but potentially higher incomes?

“As someone's income rises, the first thing they do is eat better, specifically with higher protein levels,” Don explains. “I think it's uniquely supportive to cattle and beef, but I think it is equally supportive to the other protein sources as well.”

Takeaways: The Near and Long Term

Matt shared key considerations for farmers in the short, medium and long run.

The Short Term

It’s going to emphasize the importance of getting good trade deals and finding new export partners as competition among the major agriculture-producing countries will intensify.

“If you're thinking about a contraction, it means in the short run, we need to really position ourselves well. It really emphasizes the point of getting good trade deals, finding new export partners, really establishing those partnerships, because that demand or that stress to get those deals is going to increase.”

The Medium Term

Higher-value products will matter more.

“It puts more emphasis on thinking about, how do we take our current commodities, how do we turn them into a higher-value product, consume that higher-value product here, but also export the higher-value product.”

Matt gave an example of the Renewable Fuel Standard (RFS) and ethanol production. The U.S. has gone from bulk corn forming 82% of corn product exports in 1990, before RFS, to now 60%. Now we export a lot of ethanol and ethanol production byproducts, which are higher-value products than bulk corn.

He’s hopeful for the buildout of the soy crush industry and the U.S.’s ability to export more higher-value soy products.

The Medium to Long Term

Acreage will likely shift.

“You'll see some acres, I don't want to say switch, but you'll see some acreage changes,” Matt said.

“For example, already in Nebraska, I run into a lot of people that are growing white corn. Some are doing organic white corn, right? Again, not all their farm, but they're trying it out on some acres. You see some people trying blue corn. That's not a big shift in terms of going from yellow No. 2 to this, but it's a mentality shift of, ‘Hey, maybe I can change some of my acres to meet a demand niche that has a higher return.’ Same thing too with dry beans, dry peas. You've seen that really in western Nebraska start to shift.”

More to Come

“We're not done with [the series], as you can imagine,” Matt said. “We're trying to take our time with this. Trying to think through it really logically, not just from an academic standpoint, but does this make sense from a demography standpoint? Does this make sense from a farmer standpoint?”