Episode 8 | Changes in Agriculture Impacting Us at Home

Transcript of Podcast Video

Transcripts have been lightly edited for clarity and readability.

Welcome to At the Table with Central Valley Ag—transparent leadership perspectives, innovative strategies, and actionable insights designed to help you grow your operation and strengthen your foundation for long-term success. Whether you're in the field, in the office, or thinking about what’s next, this is where ideas grow into action. Pull up a seat—let’s get started.

Nic McCarthy: Hello, and welcome to At the Table with Central Valley Ag. I’m Nic McCarthy, President and CEO of Central Valley Ag Cooperative.

Today, we’re digging into a topic that’s on everyone’s mind: how changes around the world are impacting agriculture right here at home — and what it means for our member-owners.

To help break this down, I’m joined by three of our leaders here at CVA:

• Chris Carlson, Senior Vice President of Agronomy
• Doug Rowse, Senior Vice President of Feed
• Jeff Bechard, Senior Vice President of Grain

Today, we’re going to talk about the perspectives from each of their business units, how global trends are influencing our local operations, and most importantly, what this means for you as a member-owner of CVA.

We’ll jump right in. It’s obviously been an interesting few weeks since that Saturday morning when we woke up to news of the Iran conflict. We continue to see tensions in the region, and peace talks don’t appear to be moving in the direction many had hoped.

So let’s start with the big picture. What global trends are we seeing, and how are they affecting each of the business units you lead here at CVA? Chris, maybe give us a little insight from the agronomy side.

Chris Carlson: Yeah, sure. From the agronomy side, there are really three main drivers affecting the market right now.

The first is price volatility. We’ve always had volatility, but it feels more extreme today than ever before. A lot of that comes down to supply and demand. Right now, supply is tight because of global conflict, while demand remains strong as we’re in the middle of planting season. Trying to balance those two factors continues to drive market swings.

The second driver is weather. We’ve always dealt with weather, but it seems like weather events are becoming more extreme. We’re seeing larger droughts, stronger hurricanes, and major wind events that damage infrastructure or commodities. Whether those events happen here in the Midwest, elsewhere in the U.S., or overseas in places like South America, the impacts ripple back into our markets and create disruptions and opportunities we may not have anticipated.

Third is geopolitics. It’s not just about what happens today — it’s about what could happen this afternoon or tomorrow. Over the last six weeks especially, uncertainty has become a major factor in decision-making.

Nic McCarthy: Yeah, it really continues to be a juggling act.

COVID was probably the first major supply chain disruption we’d seen in a long time, and many called it a black swan event — which it certainly was. It may still be the biggest one we’ve experienced in decades. But since then, it feels like volatility has become the norm.

You think about the Ukraine invasion and what that’s done not only to grain trade — which we’ll talk more about with Jeff — but also to the overall supply chain throughout that region. Now with Iran, there are major implications for energy, fertilizer, and even some feed components, Doug, that are sourced from these areas of conflict.

It continues to be difficult — both for member-owners trying to decide when to make decisions, and for us and our suppliers trying to layer positions into these markets.

Jeff, what are you seeing on the grain side?

Jeff Bechard: I had three key themes as well, very similar to what Chris mentioned.

First is war and geopolitical conflict. For grain, it really started with the Ukraine-Russia conflict. The Black Sea region is a huge export area, and disruptions there changed global supply availability and created opportunities elsewhere.

Now we have the Iranian conflict, and the biggest impact so far on the grain business has been transportation costs. Fuel surcharges are increasing on both truck and rail freight, which negatively affects margins and raises the cost of moving grain into the market.

Second is trade — specifically tariffs. It’s been quite a few years since we’ve seen U.S. administrations use trade policy as leverage against other nations in this way. You probably have to go back to the 1979–1980 Russian wheat embargo to find a comparable situation.

That uncertainty affects exports. We believe demand should come to the U.S., but trade disputes can change timing and create uncertainty, making it difficult to rely on that demand.

The third factor is global supply. We’re now in our third straight year of record world commodity production — particularly in rice, wheat, corn, and soybeans.

The biggest driver there is Brazil. Their growth has been remarkable. They’re now harvesting around 177 million acres of crops, including roughly 121 million acres of soybeans, compared to about 85 million in the U.S. Their corn production is also rapidly expanding.

This trend started decades ago when tropical regions of Brazil began converting land to soybean production, and it has continued ever since. They’ve invested heavily in infrastructure, and that increased supply has created major competition for the U.S. market.

That trend isn’t going away, and it’s probably the most significant long-term structural challenge our markets will face.

Nic McCarthy: Yeah, we’re definitely seeing shifts in infrastructure, grain flows, and where end-user demand will come from.

A major question moving forward will be the relationship with China and what future trade relationships look like depending on political leadership changes. But there have also been positives. The USMCA has been very important, and hopefully we continue to see progress there.

We’re also seeing changes in grain flow patterns — maybe not as much movement to the Pacific Northwest, but potentially into other markets.

Another area we remain bullish on is protein demand, which Doug will probably touch on here.

Doug, what challenges are we seeing from the feed side?

Doug Rowse: These guys hit on many of the big ones already.

From the feed side, we import amino acids and vitamins from Asia, and those markets have experienced price increases. We’ve also seen impacts from rising energy costs on both bulk and bagged ingredients.

I looked this morning, and our fuel surcharge on outgoing complete feed deliveries is up about 20%. A dollar per ton may not sound like much, but it affects every ton of feed we manufacture and deliver.

On the manufacturing side, many feed ingredients are petroleum-based products, so higher energy costs also increase production costs.

Nic McCarthy: And we’re all going to feel the impact of fuel.

If we’d had one more seat at the table today, we would’ve had Jeff Engels, our Senior Vice President of Energy, join us as well. One of the things Jeff has highlighted is that the short-term pain point right now is clearly fuel prices and crude oil volatility.

That affects every aspect of agriculture — especially as we head into planting season with high diesel demand, and potentially irrigation season depending on weather conditions.

One message Jeff emphasized is that when you look farther out on the supply-and-demand curve, the outlook isn’t necessarily as concerning if this conflict can be resolved. So while we believe this may be short-term pain, it’s still going to impact operating costs and how we go to market.

As we think about navigating this volatility, what advice would you give growers?

Chris Carlson: The biggest thing is probably the easiest to say and the hardest to do: take emotion out of it.

We often get caught up in reacting to what happened in the market today. Instead, stick to your plan. That plan may need to adjust along the way, but having one is critical.

We also need to focus more on ROI rather than just cost. Sometimes we get too focused on the upfront price instead of asking what kind of return we’re generating.

Jeff Bechard: I’d echo that. Volatility can sound negative, but there’s opportunity in volatility.

When markets move, you have to be prepared because opportunities may not last long. It all starts with having a plan, understanding your cost of production, and establishing selling targets based on both price and timing.

At CVA, we help growers identify those targets, monitor markets, and execute plans successfully.

Doug Rowse: For us, it all comes back to breakevens.

Understand your cost of production. Work with our sales and purchasing teams, and take advantage of opportunities when they arise.

Fortunately, livestock prices remain strong. Cattle markets are at unprecedented levels, and demand is still there. Pork, poultry, and dairy are also performing well.

But there are risks, so it’s important to use available information and work with our team to manage ingredient costs and margins.

Nic McCarthy: Doug, I think “breakevens” is the key word.

The livestock sector often knows its breakeven before cattle are even purchased. That’s something we need to continue improving at CVA and at the farm gate.

I was talking with a grower recently who was considering adding grain storage to capture soybean basis opportunities. I asked him, “Did you capture the $2 move in the market over the past four months?” The answer was no.

I told him I’d focus more on capturing the $2 move than the additional 30 or 40 cents of basis opportunity.

Knowing your breakeven gives you the confidence to execute when profitable opportunities arise. And we shouldn’t be afraid to communicate those targets with our teams.

Any final thoughts on global impacts and what growers should focus on moving forward?

Jeff Bechard: I’d go back to global supply.

Competition from South America — especially Brazil — is likely to keep us in a lower-priced commodity environment for the foreseeable future. That may mean something like a $4 corn market or a $10 soybean market becomes more normal.

Operations need to position themselves to succeed in that reality. Without a major weather disruption somewhere in the world, it’s difficult to count on significantly higher prices long term.

Chris Carlson: I agree with Jeff.

Now is the time to be collaborative across grain, feed, energy, and agronomy. We need to help growers understand breakevens not just today, but three to six months from now.

The volatility and geopolitical uncertainty are probably here to stay. Our job is to help simplify that complexity and help growers navigate toward profitable acres.

The opportunity is there — but we have to be willing to act when it presents itself.

Doug Rowse: I’d also encourage growers to look at diversification.

A lot of successful farming operations were built on diversity, and in some cases we’ve moved away from that. I think there will be opportunities for diversification to return to the Midwest.

We have strong water resources here, and as export markets become more challenging, we’ll continue finding ways to utilize grain domestically — especially through livestock production.

Nic McCarthy: It really feels like our region could become increasingly important as demand patterns shift across North America.

I think there are three major opportunity areas we continue discussing as a leadership team:

• Protein and livestock production
• Fuel and renewable energy demand
• Food supply and food security

We believe fuel demand will continue growing, whether that’s expanded soybean usage for renewable fuels or continued growth in ethanol demand through E15.

And on the food side, I actually think the recent focus on healthier food systems creates opportunity for farmers to reposition themselves as providers of high-quality, healthy food for the American public.

With that, I appreciate everyone’s time today. Thanks for sharing your perspectives and helping connect the dots between what’s happening globally and what it means locally.

One important takeaway is this: we can’t control what happens around the world, but we can control how we respond here at home.

At CVA, we want to help our member-owners stay informed, remain flexible, and adapt to changing markets. That’s what your cooperative is here to do.

So to our member-owners, thank you for being part of CVA.

If you have questions or topics you’d like us to cover in future episodes, we’d love to hear from you.

Until next time, stay safe, have a safe planting season, and thanks for joining us today.

Thanks for joining us At the Table with Central Valley Ag. We want to hear from you — share your questions and topic ideas, and subscribe so you’re the first to know when a new episode drops. At the Table with Central Valley Ag — where ideas grow into action.