Midwest Agriculture Conference Session 2 Transcript

DAVID OPPEDAHL: All right, everybody, it's time to come back to your places. And I don't want to interrupt all the good conversations, but we do have two more speakers this morning to get through. And the next one is going to be David Ortega. He's a professor at Michigan State University. He's also the Noel W. Stuckmann chair in food economics and policy. And he comes with a long established research and teaching agenda. And you might have seen his name in the news lately.

The media have been picking up interviews with him. So it's very pertinent for us to have him here today. And then the next speaker is going to be Joana Colussi, who's the research assistant professor from Purdue University. And Joana recently moved from the University of Illinois at Urbana-Champaign. So we're sorry to have her left the state, but at least she stayed in our district. So we're thankful for that. And take it away, David.

DAVID ORTEGA: Thank you, David. Let me pull up the slide deck here.

DAVID OPPEDAHL: Sorry about that.

DAVID ORTEGA: Oh, no worries. This guy here?

DAVID OPPEDAHL: No, that.

DAVID ORTEGA: Great. Well, good morning, everybody. And thank you, David, for that introduction. And I also want to thank the Federal Reserve Bank here in Chicago for the invitation to speak and for putting together such a wonderful agenda today. I can't think of a more important topic of relevance to US agriculture than talking about trade and trade uncertainty, given everything that is going on.

So I want to start off, this is not the new coronavirus up here. But rather, we are looking at how trade networks and food and agriculture have evolved from 1986 to fairly recently. You can see each of these is a country, the size of the food and agricultural sector. The world has really gotten smaller when it comes to food and agricultural trade. And I want to start off talking about why we engage in trade. I know Amanda talked a little bit about that this morning, but I want to touch on some other key points.

One of the first reasons why we engage in trade is to be able to meet year-round consumer demand for a lot of food and agricultural products. We have a tremendous agricultural sector here in the US. I come from the state of Michigan, the second most agricultural diverse state in the country. But we're not able to produce year round, so we rely on our partners to be able to import products in our offseason. We talked about comparative advantage. Sometimes it's cheaper to produce goods overseas and import them as opposed to producing them here domestically. And then we have just good old consumer preferences.

I have two little girls at home. They love a kinder egg. That's imported. I love a good cup of Colombian coffee. That's imported. So we engage in trade to be able to satisfy and meet consumer preferences. On the export side, again, comparative advantage, we're very good at growing row crops, corn and soybeans. Export markets present tremendous income and market growth opportunities. You'll see some examples of that later on in the presentation. We also export for foreign aid, up to very recently with the US Agency for International Development, a big market historically for our producers to be able to send food as part of foreign aid programs and as part of our geopolitics around the world.

So this graph you've seen already, but I want to touch on a few things. And it's very interesting when I talk about the trade deficit because a lot of folks, I know not many in this room, are surprised to learn that we actually are in a trade deficit when it comes to food and agriculture, meaning that we are importing a lot more than we are exporting. And when you look at the deficit back in 2023, it was about $20 billion, 2024, $40 billion. And we heard from Amanda earlier this morning, we're looking at a forecasted deficit very close to $50 billion.

Now, what has led to this? There's a couple of stories here. Our exports, particularly of bulk commodities, really stalled back in 2014, 2020. Tremendous competition from our partners, and particularly South and Latin America. We had a strong dollar that made our exports relatively more expensive. And we also engaged in a trade war with one of our primary export markets back in 2018, 2019.

On the flip side, we've had tremendous growth in imports. We've had a very strong economy domestically. We've had rising consumer demand. And as you'll see, we are importing a lot of high-value consumer-oriented products. So those two trends there have led to our trade deficit and food and agriculture. And that's forecasted to grow in the coming year and potentially years.

Now, I'm going to start off with talking about exports. Then we'll talk about imports. I'll do a couple of case studies and then talk a little bit about China at the end before I turn it over to Joana to look at Brazil. When we zoom out on the export side, we can see that from about 2000 to fairly recently, our exports have grown tremendously, from roughly about $50 billion back at the turn of the century to $176 billion as of last year.

And that growth has been made primarily by high-valued products. So we do export quite a bit of bulk commodities, the soy, corn, soybeans. But we're also exporting a lot of consumer-oriented products, a lot of meat, dairy. And that's where the growth has really been over the past couple of decades.

And it's not just the growth in exports, but where we're sending our products has also shifted over the past 25 years. Back in around the year 2000 to more currently, we've seen a growth in exports to our primary trading partners here in North America. So the share of exports that go to Mexico and Canada has increased substantially. We are also exporting a lot more to Latin American countries, countries in South America, even East Asia.

That share has gotten smaller. But keep in mind that pie has grown about three or four-fold. So when we look at a country like China, we used to export about $10 million, or 10% of our exports went to China. That number more recently is about 17% to 18%. So tremendous growth even at the country level.

Top ag export markets, Amanda touched on this, Mexico came up to the number one spot. We are exporting about $30 billion worth of goods and food and agriculture to Mexico. Canada a very close second. And then you have China, other East Asian countries, like Japan, South Korea. And then we have some Latin American countries, like Colombia and in Southeast Asia, Vietnam, Philippines, as well as the Netherlands and the EU.

This gives you a better picture of what's going on here. You can see that primary export destinations are by far our closest neighbors, Mexico and Canada. In fact, when you look at global exports, exports to Mexico and Canada are about 30% of global exports. So a lot of trade happening. A lot of that has to do with NAFTA, subsequently USMCA. But we also export quite a bit of products to China and other Southeast Asian and East Asia countries.

In terms of the value share of production, you've seen this graph before. It really hasn't changed very much over the past decade. We're looking at-- generally, for food and agriculture, we're exporting about 20% of what we grow, and that hasn't changed very much over the years. You can think of this as a measure of export dependency. 50% or more for things like food grains, oil seeds, the soybeans and the corn. We also export some of the consumer-oriented products, the dairy, some vegetables, meat products, as well as baked and processed foods.

In terms of our top 10 agricultural exports by value, no surprise here. Soybeans, when you add up soybeans and soybean meal, we're looking at about $30 billion last year. Then you have corn, a close second at about $13.9 billion. And then the bars in the green there are what I like to think of more as h oriented products, so things like beef, tree nuts, pork, dairy, as well as poultry meat. And that's where that growth has really happened over the past couple of decades.

If you zoom in to the seventh district, I pulled these numbers out of USDA, and I want to say a few things about how these numbers are calculated. This is coming from USDA ERS. In fact, a lot of the data that I'm presenting here is from the Economic Research Service of the Department of Agriculture. The way that they report state-level data, there's two ways. You'll see another site in a minute. But this one is actually an estimate based on cash receipts to see how much of production in a given state made up exports nationally.

And you can see that there's no surprise, and I think Elizabeth touched a little bit on this in her introduction this morning. Soybeans number one export category for many of the states, with the exception of Wisconsin where you have dairy. But it's basically soybeans, corn. There's a lot of pork coming out of Indiana, coming out of Iowa. In Michigan, soybeans, dairy, some corn, as well as feed ingredients.

Now, when we look at the more recent data, this data has actually coming from the Census Bureau, from customs. So this data here is looking at the loading point or port, basically where the goods get put on some method of transportation, where they get exported. So it doesn't necessarily mean that this production is taking place in the States, but rather it's where those goods are moving to and from in terms of loading points and then origin when we look at imports.

So you can see, looking at both of these graphs you can get a good idea for exports at the state level as well as movement of goods. So you have dairy in Wisconsin that are leaving the ports there in Michigan. Food preparations, we send a lot of food preparations to Canada. Also dairy products, soy meal. Indiana, feed, pork, dairy. These are the top five categories. And no surprise, for Illinois, soybeans, as well as pork in Iowa. And this is where the products are actually leaving the states for export destinations.

And where are they going? By and large, these products are going to our primary trading partners, Canada and Mexico. This is the number one destination. So when you dig down into the data, oftentimes, you'll have Canada, and Mexico is a very close second, or vice versa. But we're also sending a lot of food preparations from Michigan to some East Asian destinations, like South Korea. Pork from Indiana is going to Japan. And you see beef from Wisconsin making its way out to South Korea as well. Again, it's not necessarily produced within the state, but that's where it gets loaded and then sent for an export destination.

Now we're going to look at the flip side. Very different picture when it comes to imports. The vast majority of our imports are high-value commodities or high-value food and agricultural products. You can see here that tremendous growth going back from 1995 to last year. And right now, we're importing roughly $213 billion worth of food and agricultural goods. The vast majority, more than 95%, are high-valued products. And we'll talk and see what those products are. But they're coming primarily from Mexico and Canada, also the European Union, as well as some countries in Southeast Asia or the Pacific, like Australia and Indonesia.

These are the goods that we are importing. So by and large, the bulk of our imports are going to be horticultural products, so things like fruits and vegetables. A lot of that is coming from Mexico. We also import some fruits and vegetables from Canada. But that is the bulk. About 50% of our imports are horticultural products, which also includes distilled spirits.

We are importing a lot of baked goods, processed goods from countries in the European Union. A lot of commodities are coming in from Brazil, and we'll hear more about that, high-value products, things like coffee, some beef. We'll touch on beef a little bit later. But from some of these other countries in Southeast Asia or South Asia, we're importing spices-- Amanda touched on that-- as well as palm oil from Indonesia.

Seen this already. Here, just another way to look at things. Vast majority of our imports by value are horticultural crops, so fruits and vegetables, but also those baked goods, things like beef, coffee, cocoa. We get a lot of cocoa from West Africa. But we also import a lot of beer and wine. And you'll see that actually playing a role here in the state of Illinois in a minute.

Import value share of consumption, you saw this slide. This has actually increased over the past few years from about 11% to roughly 17% as of 2024. But again, we rely a lot more on imports for consumption of things like fruits and vegetables, tree nuts. When it comes to meat products, it's under 20%, but that's not trivial. And in some cases, when you dig into the categories, imports can play a very big role in satisfying consumer demand a

nd consumer preferences here. And we'll get into a couple of case studies in a minute.

In terms of the top five ag and food imports by state, this is for the seventh district, which this Federal Reserve Bank serves. You see, again, a lot of fresh vegetables or processed fruits and vegetables coming into states like Wisconsin, Michigan, baked goods into Indiana. And Illinois is importing a lot of beer. Close to $6 billion of beer is coming in to Illinois.

Now, it's important to say that that's not necessarily being consumed in Illinois. It gets then distributed across the country. But this is where the distilled spirits, the beer is coming in. That chocolate that I talked about, those kinder eggs, a lot of that is coming into Illinois, to Indiana. So again, very high-valued food and agricultural products that we are importing.

Where they're coming from? Again, no surprise, Canada and Mexico for the most part. But interesting, we see imports of dairy, in particular butter, coming from Ireland to Wisconsin, dairy coming from New Zealand into Illinois. So even though we produce these goods, we engage in trade to be able to meet and satisfy consumer preferences and consumer demand for imported goods.

So now I want to spend a little bit of time talking about some case studies. They're going to be very quick, but these are things that are on the news fairly recently. And I just want to shed a little bit of light in terms of what's happening. So you might have been hearing a lot about the tomato tariffs that went into effect earlier this summer. But I want to take a step back. And this graph on the right part of the screen shows the share of US fresh tomato imports over time.

So back in the 1990s, we were importing about 20% of tomatoes into the US. We had a lot of domestic production in states like Florida. And with NAFTA, and subsequently USMCA, we saw that share of imports rise quite significantly to where we're currently importing about 70% of tomatoes, fresh tomatoes, I should say. And that is primarily coming from Mexico.

Now, the tomato growers in Florida weren't very happy about this, so they pushed for an anti-dumping investigation, which led to the tariff suspension agreement, or the TSA, which basically allowed tomatoes from Mexico to come in duty free as long as they were sold at a floor price. And that tariff suspension agreement has been renewed multiple times, including back in 2019 during the first Trump administration.

Now, recently, the current Trump administration terminated the TSA in July of this year, and they imposed a 17% tariff on fresh tomato imports. Now, we've already seen evidence, not conclusive evidence, but there's suggestive evidence from BLS data that tomato prices have started to increase month over month. And I would predict that as we get further into the fall and winter months, we could see fresh tomato prices increase about 8% to 12% because that's when we really rely on imports coming in from Mexico because our production in Florida is primarily offline.

The next topic I want to talk about is coffee. That was alluded to this morning. That's one area of my research program that I've been working on over the past decade or so, working with coffee producers, not only in developing countries, but also here domestically. I have currently a project, a USDA project in Hawaii. So I like to say we import most coffee that is consumed. I don't to upset my stakeholders in Hawaii. But if you look, Hawaii makes up something like 2% to 3% of consumption domestically. And it's primarily folks in Hawaii that are drinking their own coffee.

But if you look at the price of Hawaiian coffee, this is Kona coffee, 1/2 pound bag in Hawaii is selling for $60 American dollars. So this is not a product that's accessible to most people in the Continental United States. And thus, we rely heavily on imports of coffee to be able to meet consumer demand. Roughly 30% of the coffee that is consumed here comes from Brazil, also Colombia, Guatemala, a lot of Central American countries. And these are countries that are facing some level of tariff at the moment. Colombian coffee, 50% tariff-- or Brazilian coffee, I should say, 50% tariff. Colombian coffee, I believe that tariff rate is about 10%.

Now, coffee prices are near record highs. In fact, coffee today is 20% more expensive than it was just a year ago, not because of the tariffs but because of production constraints. A lot of drought in Brazil a few years ago, also droughts and floods in Vietnam, a big Robusta producer that have driven prices up. And if these tariffs remain in effect, I think we can expect coffee prices to keep climbing up in the months ahead.

Beef, we talked a little bit about beef earlier. We are the largest producer of beef in the world. Brazil is just right behind us. We produce 20% of global production, Brazil 19%. And it's no surprise to I think anybody here that beef prices are high. They're record high prices, primarily driven by drought that happened back in 2022, has limited inventory. Thus we've seen record high beef prices.

Now, we also import beef from other countries, what we call lean trimmings from places like Brazil, 50% tariffs, Australia, 10% tariffs on those lean trimmings. And the reason we import those lean trimmings is because the beef that we produce here-- and I'm overgeneralizing-- tends to be a lot fattier. So you need lean product to be able to create the proper ground blend for products like hamburger meat and ground beef. And when you're putting on tariffs of 50% on one of our major suppliers of those lean trimmings, you can expect prices to go even higher in the coming months.

OK. So I want to spend the last few minutes talking about the Chinese market. So the first part of my career, I did my dissertation at Purdue, working on China as an emerging market for US agricultural exports. And so I like to show this chart up front because I think it tells us a lot about what's happening. And it helps us understand why China is so sensitive to certain issues. It's no surprise China is one of the largest consumer markets in the world, 1.4 billion consumers. And this is a very famous line in China. A lot folks this line. And it roughly divides the country into two equal parts in terms of land area.

Now, 94% of that 1.4 billion lives in that red area. So China is a massive country, but a lot of its land, it's not suitable for agricultural production. On the left there, we're talking about the Tibetan plateau, the Qinghai plateau. Not a lot of agriculture takes place there. There's some. Cotton is grown in those areas but not a whole lot. So you have population centers with agricultural production basically on top of one another.

And if you look at President Xi Jinping or what the party puts out in terms of their document, they're always making a push for self-sufficiency, for food security, as national security. And it's precisely because of what's going on in terms of agricultural production and where their population centers are located. That's why China is importing a significant amount of soybeans, and they have historically.

Now, China, it has what I like to consider or call complementary markets to US production. We talked a little bit about pork earlier. You'll see a pork slide in a minute. But here's an example when it comes to poultry exports. We exported, back in 2021, 2022, more than $1 billion worth of poultry products to China. 82% of that was chicken feet. Those are parts of the animal that have very little value domestically, and they can really get a premium overseas in a market like China.

So a tremendous profit opportunity for our producers, but there are challenges. And we've already talked about HPAI, or the bird flu. Back in 2014, 2015, I should say, China implemented a ban on all poultry coming from the US because of the bird flu outbreak during that time. They lifted the ban a few years after the outbreak ended in 2019. But with the current outbreak, we're seeing some limits to our ability to export to China. But those bans are taking place much more at the state level. So that's going to be a challenge going forward. I know we talked a little bit about there's a vaccine strategy in the works that's going to have implications for trade. And so a lot happening in this space.

Switching to the pork market, that green line is Chinese pork production. Now, you see a dip starting in 2018 that lasted to about 2020. That was African swine fever. That dip that you see in production, that decimated Chinese pork production. That dip is larger than our entire pork production domestically. So China is the largest pork producer in the world, largest pork consumer, the staple meat of the Chinese diet. So they were hit very hard by African swine fever around that time.

But I would argue that we missed a tremendous opportunity for our pork producers then. And that is because at the same time that they were hit with African swine fever, we engaged in that first trade war with China. And they put retaliatory tariffs on our pork products. And so that limited our ability to be able to fill the need that the Chinese market was experiencing at the time. Now, with the rebuilding of the pork sector, there was tremendous demand for soybeans. And we'll talk a little bit more about that, I think, with the next presentation today in terms of those implications.

So soybeans, China, our largest market for soybeans. You can see here that the share of China's soybeans that were imported from the United States dropped to 21% very recently, while Brazil's share increased to about 70%. And that really started back during the first trade war. China started to diversify where it was sourcing its soybeans.

You see the US in the red dips, and then Brazil takes off in terms of meeting China's demand for soybeans. So we're going to hear a lot more about that with Joana's presentation here in a few minutes. But what has a lot of folks worried-- I know Shawn brought this up-- is China has yet to buy a single bushel of soybeans from this year's harvest. And so that has a lot of folks extremely nervous, especially in the soybean industry.

Now, a couple of takeaways here, and this is something that I don't think a lot of folks have really gotten their head around when it comes to China. And that is that they are becoming less reliant on US agriculture. This graph on the right is perhaps what I would consider the biggest threat that China poses to the US agricultural sector, and that is that they are investing significant amounts of dollars in public research and development in food and agriculture. That graph stops at 2015. It goes even higher. On the flip side, the US has dropped public investments in ag research and development over the last two decades.

You could make the argument that private investment has picked up, but it's nowhere near the levels that China is investing in this space. They're also working to make their pork sector less reliant on soybeans and corn. They're looking at other sources of protein, dairy byproducts. Beef in China, one of the fastest growing categories in terms of consumption. They're turning to Australia for beef. They've purchased some historically from the US, but now they're increasingly turning to other partners for sourcing. And as we'll probably hear in the next presentation, they're making tremendous investments in places like Brazil, South America on infrastructure, port logistics, and similar investments.

And then, probably one of the things that I learned early on when I was working in China is that China likes stability. It likes stability when it comes to trade policy, again, because of how sensitive they are for reasons of national security and food security. And my second to last slide is going to show where we are here. This is a measure of trade policy uncertainty that is put out by a group of economists. We thought things were bad back in 2018. The level of trade policy uncertainty has basically skyrocketed as of earlier this year. So it's no surprise to me that China is turning to our competitors, Brazil, Argentina to some extent, for some of their key agricultural imports.

And so with that, I want to thank you all for your attention. And then, this is a shameless plug here, but I think it's a piece that would be of interest to folks here in attendance. We just published a paper a couple of months ago in the Journal of Supply Chain Management. I was working with some colleagues in the supply chain department at MSU, where we developed a theoretical framework with data sources to think about the impacts of the current trade war in terms of not just tariff uncertainty but also tariff rate uncertainty and how we can predict what firms are going to do.

Can we predict how trade flows are going to behave/ And this was published back in June of this year. And so far, our predictions have held true with some of the recent developments that we've seen. It's an open access piece. I'll be happy to share a copy. Feel free to reach out with any questions. I'm happy to send you a copy of the paper if you're interested. But now I guess I'll turn it over back to David for the Q&A session.

[APPLAUSE]

DAVID OPPEDAHL: Thanks a lot. I think we have a couple of good questions queued up here. One of goes right at what you had mentioned. China has replaced US soybeans with purchases from Argentina as well. But we are pledging significant aid to Argentina. Is this a policy disconnect?

DAVID ORTEGA: I would say so. So this is where we're talking economics trade policy. But then you insert politics into it. And this is where things just don't make a lot of sense from an economics perspective.

DAVID OPPEDAHL: What about the time lag between the imposition of a tariff and its impact on consumer prices?

DAVID ORTEGA: Yeah, that's an excellent question. So it really depends. And what makes it very tough to predict is the high level of uncertainty. So I've spoken to a lot of food manufacturers. They're facing higher input costs, or they might be sourcing products directly from overseas. And they've been holding out hope that, well, maybe these tariffs are going to go away or that some deals are going to be brokered. So we haven't seen the full impacts of the tariffs on consumer prices.

Now, I would argue that food is the one area where you'll see these impacts the soonest. And that's because food is perishable. We're not able to stockpile. We can't put things in bonded warehouses across the country. But when you look at specific categories, that's where you're already seeing the impacts of some of these tariffs. Bananas, for example, we import virtually all bananas that are consumed in every American household, by and large. Banana prices have gone up since the tariffs, since the reciprocal tariff announcement. Tomato prices have started to inch up. Now, some of these categories are highly volatile, so we can't attribute those increases just yet to the tariffs by and large. But they're suggestive and in line with what we would predict would happen.

You also have canned fruits and vegetables is another one. This is where you have in-- the steel and aluminum tariffs are impacting the price of tin steel. And so we started to see the price of canned fruits and vegetables go up. One of the biggest challenges that makes it tough to address that question is we don't have real-time data that is nationally representative. We get reports from the Bureau of Labor Statistics once a month.

And so we're watching that closely. But I would say if these tariffs remain in effect at the level that they currently are, for another month or two, we're going to see these prices go even higher. But you have to look at specific categories. They're going to get averaged out because, again, we're only importing about 17% of what we consume. But when it comes to fruits and vegetables, that share is a lot higher. And that's where you're going to see some of those impacts.

And then you also have to think about, well who gets impacted by these tariffs? It's really low-income households. Talk about bananas, right, a cheap source of nutrients and calories. It may seem like, well, maybe it's just a few cents here and there, but it matters to low-income consumers because they're the ones that bear the brunt of these price increases.

DAVID OPPEDAHL: So this one maybe was really directed towards Shawn more, but maybe you can take a crack at it. Crop prices haven't increased much over the past 15 years, but yield per acre has increased. How might input costs per acre compare with the crop yield per acre times price? So do you have--

DAVID ORTEGA: It's definitely a Shawn question.

DAVID OPPEDAHL: Yeah.

[LAUGHTER]

I don't know. Shawn, maybe you could just take a quick-- you can hit the button there.

SHAWN ARITA: Is this in reference to China's-- sorry. Can you repeat the question again?

DAVID OPPEDAHL: Yeah.

SHAWN ARITA: I'm sorry. There's a lot in the question.

DAVID OPPEDAHL: Yeah. So crop prices haven't increased much over the past 15 years, but yield per acre has increased. How might input costs per acre compare with the crop yield per acre times price? So I guess revenue basically.

SHAWN ARITA: So actually, I think this is a Joana question.

[LAUGHTER]

Joana and I were actually discussing this, and she's going to allow--

JOANA COLUSSI: [INAUDIBLE]

SHAWN ARITA: Yeah. So you have to think domestically. We also have to think on a global level, right? The crop prices are driven by a globally integrated market. We know that they're extremely-- they all move together. It's not just what the US is producing. It's the efficiency in Brazil and all of our competitors. And I think the important thing to keep in mind is that our input on the production costs, most of those production costs, we think about land and other inputs, that is not well integrated with the global economy.

And so you can have those disparities. So ultimately, we have to think about, the domestic market, supply chain, the efficiency surrounding that, and how there is a difference in those trends with the global forces. And again, I'm going to tee it up for Joana there to connect how does Brazil vis a vis the US in terms of those differences because we have seen a lot. And I think over the past two decades in particular, when you've had an increasingly global integrated market, that's where you're having these different disparities flare up.

DAVID OPPEDAHL: Great. And one of the other questions is going to be on Brazil and China demand. And I think we'll wait till after Joana's remarks for that. So thanks a lot, David, and we appreciate your participation today.

[APPLAUSE]

JOANA COLUSSI: Thank you. Hello, everybody. Can you hear me well? Thank you so much for having me here in Fed of Chicago. It's great to be here. It's my first time here. So I am Joana Colussi. I'm a research assistant professor at Purdue University. I just moved to Purdue one month ago. Before that, I worked for five years at the University of Illinois in Urbana-Champaign with the farmdoc team.

In Purdue, my role is related to extension and research under the Center for Commercial Agriculture. Basically, we work with farm and risk management, primarily in grain production, corn, and soybeans, and also in livestock.

And I'm from Brazil, as you can tell in my accent, maybe. And I'm super glad that my peers, they did a great job covering the global trade the US. So you save more time to go deeper in the South American presentation talking about Brazil and Argentina. So I'm from the South of Brazil, if you look at the map. It's the last one, state close to Uruguay and Argentina.

And today, a very quick overview of Brazil and US agriculture, with some comparisons, including cost production as well. And then I go deeper in soybean production, corn production, and global trade. And one topic that I often received, question that's about the potential for future crop expansion in Brazil, and also challenges to continue growing. There are a lot of challenges in Brazil around the agriculture. And questions and answers.

So this graph, it's really interesting, at least in my opinion, because it shows how long did it take for grain production to grow by 100 million tons in Brazil? If you go back in '70s until 2000, it was 28 years for Brazil reached 100 million tons. Then, from 2000 to 2013, 14 years for Brazil reach plus 12 million tons. And in the last cycle, eight years.

So we started with 28 years, then 14 years, and then eight years to reach more than 300 million tons. Of course, I'm talking about all the grain production, corn, soybeans, cotton, wheat, all the agriculture. But I think it's quite interesting to see how this time, this timeline shows this growing since the 70s.

So also, David asked to me to give you an overview about the relevance of Brazil in the global trade. So we will not have time to touch all these products, but I'd like to show you, for soybeans, for example, the global dependence on Brazilian imports is 58%. For chicken it's 36%. For coffee 31%, beef 28%, soybean meal 27%, corn 26%, pork 14%, and soybean oil 12%. So this is a broad overview about the relevance and the importance of the Brazilian production.

So I'll not touch a lot on that, but here's just a comparison, the share of the world production in some products comparing Brazil and United States. So they are big producers of orange juice, orange as a whole as well, soybeans, coffee, meat, United States the number one, like David mentioned. Brazil is the number two. Brazil is very important also in chicken. And corn, corn I'll talk more about corn. Brazil is increasing its relevance on the international market, cotton and swine as well.

And here, Brazil and US share of World exports. So orange juice, Brazil is the number one, more than 70%. In terms of soybeans, Brazil more than 50%. Very important, sugar, of course, from sugar cane. So here you can see all the lists just to give you a broad overview. So let's go deeper in soybean production and trade in Brazil. I know that there are many numbers here that they have overlap the numbers that were presented before.

But here soybean production in Brazil and the United States in the last 20 years. As you can see, Brazil overcome the United States as the number one soybean producer in 2018. And since then, Brazil is increasing its relevance. From 2018 until 2024, Brazil increased its production in 40% and also increase the importance in the international market. But in terms of the volume, the increase in the last seven years was huge.

There are many factors that explain why Brazil is increasing, especially in grain production, in soybeans. One of that you know about that is the area. So Brazil, we still have new agriculture frontiers. I'm talking more about that. But another one, another factor that helps to explain this increase is the soybean yields in Brazil.

If you go back in '70s, you can see that there was a gap between-- sorry. Here should be the opposite. The green line is United States, and the orange line is Brazil. But as you can see, there was a difference in '70s. And nowadays, in terms of yields, Brazil and the United States, they are pretty similar, around 55, 60 bushels per acre.

Here soybean exports, also, I'm not spend a lot of time talking about that. But as you can see, Brazil became the number one in soybean exports in 2013. Of course, there was a huge drought here in the US in 2012. But since then Brazil is increasing its relevance on the global market. And nowadays, I would say that the soybean exports from the US is a little bit more than half than the total in Brazil.

So here we also saw these numbers before. But maybe here you can see very clear what's happened since 2018. So the China's share of US and Brazil exports before the first round of the trade war. United States used to have around 60% of this market. In 2018, Brazil, the China share of Brazil exports was over 80% and that year the United States 18% Since then, the United States recover its participation in Chinese markets.

But they never got again the same level than before the trade war. The average since then was around 5,055% These numbers are until 2024. So here we have the numbers that I think shone a red, presented these numbers related to US soybean exports and exports to China. So last year-- I hear we got just the last two years. Last year, the US soybean exports to China was around 50% of the total exports.

Remember, the United States exports around 20%-- China, sorry, represent around 20% of the US production and around 50% of the US exports. But this year, this share is very low. It's less than 30%. And there was no shipments since actually May, May a little bit, but June, July, August, and September.

Meanwhile, here is the picture related to the monthly Brazil soybean exports versus exports to China. So from January 2025 to August 2025, Brazil reached a record for the period for eight months. Around 75% of the exports from Brazil went to China. Just in August, 85% of the total soybeans sold for the international market went to China, another record.

So even though Brazil had a record crop season that they finished in May, even though after that, different than the US, when you see the prices going down, the soybean prices in Brazil is going up. Of course, we have the international markets. That's Chicago. There is no way to change that. But you also have in Brazil the premium on port. That's extra money that farmers receive when they have a high demand. And this premium, since then, they are up $1 per bushel. The last time that I looked at the numbers, Friday, for November shipments was almost $2 per bushel.

And also, we have another factor in Brazil. Here in the US, dollar is dollar. In Brazil, dollar is different every day. So in the last months there was depreciation of the US dollar against the Brazilian real. That's not good for exports. But when you have this difference, the farmers, they are able to offset any variation on the international market. So we can say that this picture is at least from January to August. And given what we could expect in the last three months of the year, we can have a scenario very similar than we had in 2018.

So here, the question about the average gross revenue and costs for soybeans, here we use data from the Agri Benchmark Network. That's a database that we have typical farmers in many countries, in Brazil, Argentina, Paraguay, the United States, Europe, Asia as well. And you are able to compare the costs related to direct costs, operation costs, overhead costs. So here I put a graph that we compare the number five. But let's take a look just in Brazil and the United States.

As you can see, there is a huge difference in overhead costs in the US. And the reason for that is the price of farmland. We have Professor Bruce Sherrick here from University of Illinois that could explain much better than me what's happened in the last decade in terms of farmland values. But we have producers here. We also know that's it's a huge increase. In Brazil, we also had a huge increase in the farmland prices. But still, there is no comparison.

The cost opportunity in Brazil for land is much higher than here. And different than here, around 80% of the land in Brazil is owned land. It's not rent land. It's different than here. So they don't need to pay for renting because they are the owners of the land. But on the other hand, Brazil has a huge cost, indirect costs, much higher than here. And that's because basically fertilizers, pesticides as well, that are quoted in dollar.

Here, remember, we are talking about pre-COVID and post-COVID. We did the average from 2015 to 2019 and then from 2020 until 2024. So remember, we have a spike of fertilizer prices in 2022, 2023 a little bit. So all these factors, they have impact in these numbers. But as you can see, the gross revenue follow this pattern, at least in Brazil and the United States.

Here you can see the economic profits for soybean production, again before COVID and after COVID. As you can see, the economy profits in Brazil were much higher than here in the US. So that also explains why Brazil continue growing the area. It's because of that. Again, these numbers are from the Agri Benchmark that's a partnership between Purdue University and other institutions around the globe. Oof. I'm done with soybeans. Let's see.

[LAUGHTER]

I know that in the US, corn is first, is the priority. In Brazil, it's opposite. Soybean is the priority. We tend to talk of more soybeans than corn. I put less slides related to corn. So here, the corn acreage and production in Brazil over two decades. So as you can see, also increasing area and increase in production as well. Looky here. We have the total corn production in Brazil in three crops per year. Remember, first crop during the summer time, second crop during the fall, winter.

And the third crop is a new crop in the northeast of Brazil. I'm not talking about corn plus corn plus corn, of course. I'm talking about that. Brazil has three crops per year in different regions and in different seasons. When you finish the year we put all together, and you have total corn production. But when you look-- the safrinha, that's the second crop, they normally do-- they must do after soybeans.

So they have soybeans in the first season, during the summer, and they have corn as a second season. Safrinha 20 years ago was-- safrinha is little harvest in Portuguese, was very small. Nowadays, safrinha represents around 80% of total corn production in Brazil, 80%, 8 0.

So here, remember that I showed the graph related to the average soybean yields for the US and Brazil. Here you can see the average corn yields for the US and Brazil. Of course, I have a lot of maps that show this deviation between regions. Here we have the national average. But there is a huge difference because when you compare soybean yields in Brazil and the US, they are very similar.

When you compare corn yields, they are super different. It's half. The corn yields in Brazil on average is half than the US yields. There are many reasons for that. I could spend a lot of time talking about the Cerrado region, the soil. Also, the safrinha, they plant safrinha as a second season. It's not in the ideal time. It's not during the summertime. So also, it helps a little bit to explain. In the first season is in the South of Brazil that every other year we have droughts. So it's kind of--

So also, safrinha is very important for the Brazil's ethanol boom. Remember? Brazil is a big producer of ethanol from sugarcane, not from corn. But in the last 10 years this reality is changing. Corn ethanol plants have begun appearing in the center West region. Nowadays there are, I think the last number is 25 ethanol plants in Brazil using corn as feedstock.

And there are other 16 under construction. These new plants, they are capable of using either corn or sugarcane. We have plants that they are full corn, but the most common is we have plants, that we call flax. They can use either corn or ethanol according the season. And these plants are increasing in the center west of Brazil because of safrinha. Most of the safrinha, the second crop in Brazil is planted in the center west region in these states.

Here you can see the Brazil's ethanol plants. They are consuming record volumes of corn. Nowadays, 15% of the total corn production goes to corn crush for ethanol. This number less than 10 years ago was 0. I remember during the safrinha harvest in Mato Grosso at 10 years ago, the price was so low that for farmers would be more expensive to pay the transportation for the corn, move around the country, than keep the grain there.

But nowadays, the situation is different because we have the ethanol plants growing. We also have one international market for corn. Here I'm just mention about that. But just for you to see the difference between the use of the ethanol from corn is growing in Brazil, but it's still sugarcane is the primary source.

So here, again, the same numbers related to costs, production, the same picture with the soybeans, with some differences. Yeah, also in Brazil, related to direct costs. But for safrinha the direct costs, they are important. But remember, it's a second crop. So most of the inputs from the first season farmers, they can take advantage of that. They can use the same machinery the same labor force because it's the same land.

And here the economy profits for corn production before COVID and after COVID. David, all audience they have access to the slides, right? Yeah, so don't worry about take pictures. I know that I'm talking a little bit fast because I'm still need to talk about the potential for crop expansion in Brazil. So here you can see the land use and land cover annual evolution in Brazil. And here, this map shows the land use and occupation in Brazil.

Look, preserved vegetation on rural properties, they represent 25% of the land in Brazil. What is preserved vegetation on rural properties? It's private, private land in legal reserve. It's not state parks, national parks, conservation units. It's private land that farmers must to preserve. Depending on the region, there is a rule in Brazil under the forest code, from 20% to 80%-- so most of the regions, like in the South of Brazil and the savanna in the Cerrado, is 20%. We have some areas that's 35%. But in the Amazon region it's 80%.

What that means? I'm a farmer in the Amazon region, in this area, including north of Mato Grosso. Let's say that I have 1,000 acres there, my 1,000 acres. They are private land. I bought this land. I can use just 800-- sorry, I can use just 200 in this region. I must preserve 800 acres. And there is no compensation for that, no money from government. If I live in the south of Brazil, I have the same 1,000 acres. I can use 800, and I must preserve 200.

This area is equal to the size of 10 European countries. If you add the conservation areas and Indigenous lands, conservation areas, that includes national parks, state parks and plus the Indigenous lands, we have almost 50% of the area in Brazil that are native area. They are untouchable. People cannot use. And this is one area equal to the size of 28 European countries.

And if we add the military areas and the areas that are not legal nowadays in terms of the legal reserve, we have 16% of the land. What that means? 25% plus 24%. We are talking about 65%. 65% of the land in Brazil is native area, is area that they are not using. So Brazilians, they use around 30%, 32% of the land for farming, including livestock and also agriculture. So in this area it's equivalent to 43 European countries. It's huge.

So the real expansion potential, how many acres of degraded pastoral land could Brazil convert into crop production? I'm not talking about Amazon, not talk about Native areas. I'm talking about degraded pastureland. What is degraded pasture land? It's areas that nowadays are occupied by livestock. They were a red converted in the past. But sometimes they are not profitable. Ranchers need to do a lot of investment in fertilizers. So they prefer to sell this land or to rent this land to do the conversion into agriculture. How many acres do you think is this potential? Any guess? Brazilian one? No?

[CHUCKLES]

We are talking about 70 million acres. Of course, this is the potential. I'm not saying that, oh, Brazil will convert 70 million acres in the next decade. There are a lot of factors in this game, so international market, Chinese demand, the currency. I'm saying that there is availability for that. There is land.

Land like this, when we took this picture with the farmdoc team two years ago in Mato Grosso, this is a region that nowadays is occupied by livestock and could be converted into agriculture. Looks not Amazon. We have some trees, but yeah, it's not a forest. So that represents represent 35% increase compared to the current crop season.

We also have the-- this is a study from Embrapa. I didn't mention that. And they put all the states where the crop expansion potential area could be happen based on degraded pasture land. As you can see, the highest potential is in Mato Grosso in the center west, Goiás, Mato Grosso do Sul, and some regions in the new agricultural frontier, Matoopiba, Maranhao, Tocantins, and Bahia, four states in the northeast of Brazil. All these states I'm talking about, they have Cerrado. Cerrado is the Brazilian savanna.

We also have potential related to do a second crop. Nowadays, less than 50% of the soybean area in Brazil is occupied as a second crop. Of course, there are many regions that will be super hard to have safrinha, but there are other regions that is possible to increase corn production just using the soybean area.

Let's say Mato Grosso. Mato Grosso, nowadays, 30 million acres are occupied with soybeans. And around 18 million acres are occupied with corn. That means that we have a potential, let's say, 10, 12 million acres that could be used for corn as a second season. Remember? It's the same land. And we also have potential in other state, Parana, Mato Grosso do Sul in this green area. Whoof, two minutes for challenges. I should save more time. But let's go.

Flow, the logistic flow of Brazil's grain export. So, so far, I'm just talking talk good things about Brazil. And you'd say, oh, she's Brazilian, she's biased. So there are a lot of problems in Brazil related to credit, related to roads, infrastructure, corruption, unfortunately. But here you can see the logistic flow of Brazil's grain exports and for domestic use as well. But just look at the numbers related to exports.

In comparing with the United States, Brazil uses more than 50% of its-- sorry, 50% of the exports in Brazil, the transportation is under trucks. In the US, it's 14%. Rail 33% in Brazil, and barge only 12%. If you look at the domestic in Brazil, it's even more dramatic. So 97% of the total of transportation in Brazil in terms of soybeans is under trucks.

The situation was much worse in the past. Nowadays, it's better. If you go back 15 years ago, the only option for farmers to export the soybeans were the ports in the southeast of Brazil. Nowadays, they have the option to export through the north ports. So let's say that my production is in the north of Mato Grosso. It makes much more sense go to the north ports instead of the southeast ports. Nowadays, the north ports, they represent around 30%, 35% of the total soybean exports in Brazil, and the southeast ports around 70%, 65%.

There is a huge storage deficit in Brazil. In 2025, the forecast that the storage deficit will reach over 120 million tons. As you can see, the production is increasing, but the storage is not falling at the same speed. Oh, my last slide in 20 seconds. There you go. So the share and another challenge is related to credit in Brazil. I know that Americans complain when the interest rate is 6%. In Brazil, it's 15%, 15%. But if you don't have a good credit score and you should get money outside of the financial institutions, it will be 18% a year.

So the cost of credit in Brazil is very high. That's the reason-- and also, the money from the government every year is shrinking, is reducing. So here you can see the share of operational costs by funding source in Mato Grosso. So when the orange share that say banks with rural credit is banking with subsidies from the government, like Bank of Brazil.

And they have a special lines with some kind of subsidies. Financial institution is normal financial institution without any rural credit from the government. Input, resellers, and as you can see, the multinational companies, they are increasing the share. I'm talking about ADM Bunge, Cargill, and all COFCO, all these big traders. I didn't have time to talk about the Chinese investment in Brazil. Maybe in the questions.

So here you can see my contacts. Here you can also access the Center for Commercial Agriculture at Purdue. We also work with the Ag Economy Barometer there, where we measure the level of the confidence of the farmers in the national level every month. Thank you so much for your time. And I still have some time for questions.

[APPLAUSE]

DAVID OPPEDAHL: Let's start off with the holdover question. Can Brazil meet the additional Chinese demand? And if China's taking off beans from World market, will Brazil increase output, I guess, too? Yeah, so--

JOANA COLUSSI: So could you [INAUDIBLE]?

DAVID OPPEDAHL: So that 70 million acres, is that enough, you think, to meet the Chinese demand on the world market?

JOANA COLUSSI: The needs that they still need until the end of the year, right, 7 million? Yeah. Oh, no. You're talking about the expansion.

DAVID OPPEDAHL: Yeah, expansion, and the future, too, yeah.

JOANA COLUSSI: But I think I didn't get the question.

DAVID OPPEDAHL: Well, can Brazil meet additional Chinese demand for soybeans?

JOANA COLUSSI: Oh, if you look the land, yes.

DAVID OPPEDAHL: Yeah.

JOANA COLUSSI: Yeah.

AUDIENCE: Can you talk about short versus long run.

DAVID OPPEDAHL: Yeah.

JOANA COLUSSI: Yeah, if you look the crop expansion in Brazil, this year, we are starting a new crop season in Brazil 2025, 2026. Brazil is increased just 1%, 1.5% This is the lowest level in the last decade. So if you go back and look the situation at 10 years ago when Brazil increased sometimes two digits per year, nowadays, this speed is very slow because we have a different situation related to costs, production, that they are very high in Brazil as well.

In terms of land, Brazil has land to attend additional demand from international market. But we know that land is just one source. They should also have revenues and profits to continue growing. And different than here, there is few helping from the government in Brazil in terms of subsidies or in terms of payments. So I would say that all these factors farmers should put in the balance and analyze if it will be a good option to increase or not. But if the price will be good, they can do that.

DAVID OPPEDAHL: So next, China wants to leverage its purchasing power of Brazilian soybeans to have its seed companies take market share for biotech traits from Bayer and Corteva in Brazil. How do you see that evolving?

JOANA COLUSSI: Yeah, there is a real discussion in Brazil. It's sometimes controversial. But we have different opinions, how good it is this overdependence from China? Sometimes I say here, oh, Brazil is selling more than 80% of its soybeans to China. That's good for who? So yeah, there are two-- farmers, they can say, oh, that's good for us because you have a buyer. They are continue buying if they think in a short term. But if they think in the medium and long term, this overdependence could be a big problem.

And there are a lot of investments from China in Brazil, not as much as people think, to be honest. Most of the investments in Brazil from China they are in energy and oil, not necessarily directly in agriculture. They tried in the past to invest in farmland in Brazil. That's something that's not easy because there are a lot of restrictions related to international investments in farmland. Also, Brazilians, they have expertise to produce soybeans. So it would be very difficult for Chinese start producing in Brazil.

The way that China found to invest in Brazil was in the indirectly part, through the input resellers. But if you look in terms of investments, not nowadays, but in the past, the main investor in Brazil and agriculture was the United States. So ADM, Bunge, Cargill, at least in terms of facilities, in terms of storage, in terms of ports. We have recently a huge investment from COFCO in the Port of Santos. But in all the ports in Brazil, we have American companies there.

And when you think about the seeds or about machinery, the brands that are from here, John Deere, all these brands in terms of Bayer, Corteva, the same inputs that farmers use here, they use in Brazil. So there are also a lot of American investment. But of course, if you think the last decade, we can see more Chinese investments, but not as much as people think, to be honest, in terms of numbers.

DAVID OPPEDAHL: Someone was asking about the infrastructure ownership by Chinese. Is that something you have additional information on?

JOANA COLUSSI: Yeah, like I said, there was a huge investment recently in the Port of Santos in Sao Paulo. But in terms of roads, that's our big issue. I was remember in 2023 when I led a farmdoc mission to Brazil, we went there with some professors from University of Illinois. And we rode we call the soybean highway in Mato Grosso. It is number 163. And it's a single lane, single lane. And it was during May, like an offseason. There was no harvest at that time.

And professors, they ask, why, Joana? Why they didn't create an interstate here? Oh, my gosh. How will you explain that? Maybe I should come back in 70. So infrastructure is a huge challenge in Brazil. And maybe in 10 years I will be here to talk with you again about the same challenge. So most of the roads in Brazil, they are single lanes. They are not interstates. I cut some slides last night because I was afraid about my time, and one of the slides showed the conditions of the roads in Brazil.

And most of the roads, they are public roads. From the Federal or from the state, they cannot receive money from China sometimes. There are some restrictions. But in ports they can receive money because they changed the legislation 10 years ago allowing that private investments. But yeah, there is this movement. And of course, it's something that we see a overdependence from Brazil related to the Chinese market.

DAVID OPPEDAHL: There's also a question about how will Lula's new administration enforce the 80-20 land use rule. Is there going to be any change there?

JOANA COLUSSI: Yeah, so this law is from '70s. But until 2012, there was no reglementation. So there was the rule, but people didn't follow the rule. Since 2012, there is a reglementation of this. And they put a mark, that's 2008. So every farmers after 2008-- before 2008, they forgive. But after 2008, farmers must follow the legal reserve.

Let's say that I'm a farmer in Mato Grosso, and I sell my production to [INAUDIBLE], ADM, Cargill, or COFCO. Or if I need a loan, if I need money from a bank or from John Deere, the first information that these companies or the government, they will look, is your situation in the legal reserve? There is what we call it's a registration. It's an online registration with the satellite information that farmers need to put this information.

So the first data that any input resellers or bank or buyer, even from Europe or the US or from China, they will look if you are legal under the legal reserve. Most of the deforestation in Brazil that happened is not related to grain production. We have woods deforestation in Brazil and also in the Amazon. But when you think about grain production, it's legal production because they need it to be legal. Otherwise, they will be outside of the system.

DAVID OPPEDAHL: Well, thank you so much, Joana, for all your comments.

[APPLAUSE]