373 - When Efficiency Gains Aren’t Enough to Make Production Agriculture Profitable

We in Agriculture are told, “The low cost producer wins.” That’s been generally true for as long as anyone working in Ag today can remember. But what about moving forward? Will efficiency gains be enough to keep Agriculture profitable? No, they won’t be. The reason: Focusing on efficiency addresses supply, when our real problem moving forward will be stagnating demand. Agricultural consultant Todd Thurman joins Damian Mason for a compelling discussion about a mindset change for Agriculture.

The Business of Agriculture Podcast with Damian Mason is Sponsored by:
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Episode Transcript

(00:05):
WHen efficiency gains aren't
enough to keep production agriculture profitable.
That's the discussion
in this episode of The Business of Agriculture.
Hey, Damian Mason here with a question
before we hop into this episode
of The Business of Agriculture.
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(00:27):
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(01:29):
Hey there!
Welcome to another fantastic
episode of the Business of Agriculture.
Got a great one for you today
because I got a great guest.
He's a recurring guest.
He's my business partner
on the Business of Ag Success Group.
His name is Todd Thurman. You know him.
He runs a company called Swine Insights,
global China, Russia.
He lived in Russia, for God sakes.
Now he lives somewhere that's just about the same.
He lives in Texas anyway.
He's, he's he's a sharp dude.

(01:51):
He writes a column.
The blog is called,
there's two actually, there's
the Swine Insights blog, for work related stuff.
And then, the ag Futures blog,
the AG Futures blog, stuff we're talking about today,
the AG Futures blog.
And that's why we have him here today.
What we're talking about
is when efficiency gains aren't
enough to make production agriculture profitable,

(02:13):
because dot dot dot
efficiency gains don't change demand.
And this is something that, I'm, I'm,
I've been intrigued by
and I've been saying I'm going to do more about this.
In other words,
this is probably not the only time
you're going to hear this discussion.
But let's face it here,
you listen to the business of agriculture
because you're a business
minded agricultural professional, right?

(02:34):
What we have historically done
and Todd’s going to give you numbers of examples
and so can I.
Well, we've historically done
from going back to the 1920s and 1930s,
we got more efficient,
we got more productive, and we got more efficient
using hybridization, mechanization,
innovation, automation, all those things.
I talk about my speeches. We got more efficient.
We are able to produce copious amounts of food

(02:56):
with 1.9 million farms that used to take
6.5 million farms because of efficiency.
Here's the thing. Efficiency is great.
Fantastic, wonderful. We use less natural resources.
You know what efficiency does not do?
Efficiency does not change demand curves.
Efficiency does not create more mouths to feed.
Efficiency does not create more consumption.

(03:18):
Period.
That's going to be a problem because if you listen,
Todd and I put out before
we're grossly oversupplied
on almost all major commodities.
We're we're sitting here at break even to below,
below cost of production, commodities in many cases.
And we keep thinking, well, let's get more efficient.
Efficiency has its limitations
because it can't change demand.
That's the set up. Todd.

(03:41):
Yeah, and then
this is not,
you know, about bashing efficiency or whatever.
Efficiency is important.
It has been important.
It will continue to be important.
But I think the title of the of the podcast is
is it's really accurate in that it's it's important.
We've got to keep focusing on it.
Nobody's suggesting
that we try to pull away from that
because it's important

(04:02):
from an environmental perspective.
It's important from economic perspective.
But it's just not enough.
And I think
as we take a step back
and a lot of what you and I talk about out
there is really some of these underlying fundamentals
that is, you know, for all of our careers
have become kind of part of the background
when you think about it.
We just kind of assume

(04:23):
that this is going to continue.
And one of those is population growth.
So as we think about population growth
and economic growth
that may or may not be directly associated
with, population growth, have kind of provided that
that undergirding for the
you know, where the, where the demand demands going.
And so it's kind of this constant, current,

(04:45):
moving in a positive direction and demand
and as we know
and as we've talked about a little bit,
on, on this podcast in the past,
that pace is slowing down and will eventually
and probably sooner than a lot of people
think, reverse itself.
And so that underlying
those underlying assumptions that we've made around
demand are not going to be true

(05:05):
for all that much longer.
And they're already slowing down.
So, you know, you got population growth at its peak,
was around 2%, little more than 2% every year.
Now we're less than 1% globally.
We're about 0.87%.
And that's going to continue to get slower and slower
until it eventually, starts to reverse.
So, those, those underlying,

(05:26):
assumptions that we always kind of
make with sometimes without even thinking about it
are not going to be true for much longer.
So if you've not tuned in to our shows before,
Todd's been a guest on here like a half dozen times
and at least twice we've discussed
the reality
of the population situation and if you doubt us,
can go find those episodes
and you can, start digging into it.

(05:49):
The United Nations is still clinging
to their prediction
that we might hit 9.5 billion people or whatever.
We're at about 8 billion now,
if you believe the current United Nations, numbers,
which I don't.
So the point is, we're our population
growth rate is declining precipitously.
You might just heard him
say we were over 2% population growth annually

(06:12):
on the globe going back to the 1960s, 70s, 80s.
When Paul Ehrlich wrote his book Population Bomb,
that we're all going to die of overpopulation.
And now we're under we're sub 1%.
He just pointed out somewhere in the point 8% again,
if you believe the United Nations,
that might not sound like that
big of a deal going from, say, 2.2- .8,
that essentially means we've

(06:32):
dropped by two thirds of our rate of growth.
Imagine your 401 K
just drops its appreciation, or its investment
gained by two thirds of what it was last year.
It starts changing things. Remarkably.
All of a sudden
your count don't look like it's growing very quickly.
That's what's happening to the population.
So if you figure

(06:53):
we always had this thing in the United States
and in all of global agriculture,
make more food, make more product.
And if you do so more efficiently,
you're going to be okay.
Your head will stay above water
because you've always got this thing
called population growth and increased consumption.
Generally,
the globe's economy has improved
as global economies improve, nations

(07:14):
economies improve, the citizens eat better.
So you get people eating better
and you have more people,
so more people eating better.
Efficiency was enough to keep you in the game.
It's Todd and mine assertion.
But efficiency gains,
while as
wonderful as they are,
will not be enough to keep you profitable.

(07:36):
Maybe from here on.
Yeah.
And so much of what we've talked about is,
you know, really we're trying to provide
a supply solution
to what is ultimately a demand problem now anyway.
And again,
because that is something
that everybody thinks economics is complex.
What we've efficiencies are good

(07:58):
and we do it every day. Right.
And I want to make more with less.
But efficiency gains are say that again.
Yeah.
So efficiency gains are a supply solution right.
It's a it's a it's a way to improve supply.
And really you know,
if you break it down
and make it really, really simple and
and it really is that simple.
You know,
there's really two ways

(08:19):
to improve your productivity to produce more.
And that is to increase your volume.
So if you're in my business on the pork industry
and you you put in more sales, you put in, you know,
build more farms,
obviously that's going to do the trick.
And then you get more efficient.
So you produce more
with less or more with the same amount of resources.

(08:40):
And so those are really the two ways you can improve.
You can increase the volume of whatever the,
the product that you're producing.
And on the, on the demand side, again,
like I already mentioned, it's it's really simple.
It's how many mouths do you have to feed
and then how much consumption on a per capita basis
are those individuals, consuming.

(09:02):
And so when you kind of
break it down on the supply side
and the demand side, it's
really, you know, quite simple.
And we're just very accustomed
to working on the supply side
because we've just always assumed
the demand was going to be there.
And frankly, for the last couple
hundred years, we've been right, you know,
but those, you know, like we've talked about,
those trends are changing
and our, our, our reaction, our,

(09:24):
our, almost, intuition at this point
is to try to solve that with, with supply problems,
with supply solutions.
And so you really have
what is a developing demand problem.
And our solutions are supply driven.
And so obviously if you're,
you know,
when you say it like that,
it sounds ridiculous, but but it really is.

(09:45):
It really is that simple.
And, but those, those assumptions that we've made
are really, really powerful.
And they
then become part of our systems
and become part of our narrative.
They really become,
you know, easy assumptions to make
because they've been true all of our careers.
But that's changing pretty quickly,
and there's only so much you can do
on the supply side to, adjust for, demand.

(10:10):
I want
to, I want to give an illustration to that
very point,
and before I do
I want to tell my listeners about Truterra.
Truterra’s
the business partner here,
with the business of agriculture.
And, we really appreciate them.
They are focused on supporting farmers
at every stage of the sustainability journey
to help plan, make and maintain
regenerative management
practices to improve agronomic

(10:30):
as well as economic returns.
You know what you've got right now?
A really tough situation on production, agriculture,
where you're going to be probably around breakeven.
What if you can diversify your revenue
by getting a sustainability program in place?
And what if that sustainability program is
as simple as you reduce tillage,
you put in some cover
crops, do some of these things,
these kind of programs are going to be coming.

(10:52):
They will become more and more prevalent.
I think you should get ahead of it.
If you are in the business of agriculture,
you should really look at this
kind of a program to diversify your revenue per acre.
And you know what? You can do that at Truterra..
Go to TruterraAg.com, TruterraAg.com,
Part of the Land O'Lakes company.
Been around for more than 100 years.
Land O'Lakes. You know you can trust them.
What you just said is so dead on.

(11:12):
It's just like you and I,
when we talk about the population tide,
we talk about, a lot of these.
These well held convictions.
We're commodity business in general.
Although we applauded from everything
from organic reunified
Turkey like I had those people on this show
to different value added propositions

(11:32):
in commodity production, low cost producer wins.
That's always been a statement.
I've heard farmers say that again.
Again, I'm
sure the people at, you know, Alcoa
making aluminum think that or
whoever is in the business of any commodity.
Low cost sure wins.
But is low cost even profitable?
I mean, at some point

(11:52):
it comes down to there's just not enough demand.
And I know this is hard for people to grasp,
and it's not hard for them to grasp.
They're not stupid.
It's just it's different
because we've never thought this way.
We've never thought we're going to have
we're going to have
the supply problem handled.

(12:12):
And, and we're going to not need any more stuff.
And I think that's why it's a hard
it's a hard new way of thinking that efficiency
with just enough to keep you profitable.
Not anymore.
Yeah.
And and I think that's a lot of what we've,
what I talk about in my talks on this,
topic
is, is really
that it's just it's been true for so long.

(12:35):
Long.
As long as any of us in the room really can remember,
that demand has been growing.
And, you know, you go back,
you mentioned Paul Erlich,
and you go all the way back to the Malthus.
And, you know, they've been saying, look, we're here.
We're going to have an inability to meet this demand.
And so that was the disaster.
And in reality, we have,

(12:56):
you know, the opposite
problem really is,
is the population,
you know, bomb is not really a problem.
What we're beginning to
realize is the population bust.
It's going to be a real challenge that,
we've not really dealt with.
And so we really address that, that supply side,
throughout this dramatic growth.
And I think a lot of this has to do also with some,

(13:18):
you know, really well deserved pride
around our accomplishment.
You know, you look at that,
that green revolution or whatever
you want to call it,
where we had an explosion in the population
by anybody's definition.
And everybody thought everybody's
going to starve to death.
And,
you know,
we had a, arguably
the biggest achievement
in human history

(13:39):
by, you know, finding a way to meet that demand.
And so there's a certain amount of pride
associated with that.
And that's one of the reasons
why that narrative
has gotten to be so strong in our industry.
But the reality is the environment is changing.
We we, you know, we're proud of that.
We should be proud of that.
I know I'm proud of my little part.
I'm sure you are too.
But the reality is, though,
the environment's changing

(14:00):
and we really need to make some adjustments.
And and these are such fundamental adjustments
that, you know, I tell people all the time, look,
the world got ending tomorrow.
You know, there's a slow moving things,
but there's such fundamental,
such foundational things
that we really need to start talking about them now
because these changes are not going to be easy.
You just talked about what happened

(14:22):
going really
the last 900 years called the 20s, really the 1930s
until today,
we didn't really have surpluses until then,
and maybe a chance to push my book here.
Food for your five years old now.
Next month came out December of 19.
Where I talked about the past,
present future of agriculture.
And I call in one of my chapters
of the amazing accomplishment I see.

(14:43):
You know,
the amazing acknowledgment is when we
we not only thought we were going to starve,
we had been starving.
We we had been malnourished.
And in a very short period of time, essentially
the last
from about the 1930s until about the 80s,
50 years, the amazing accomplishment was

(15:03):
we started creating surpluses.
So much
so that my God farms, farms were going under,
because same thing we had then.
So efficiency gains Todd
there.
We've been remarkable.
You're in the swine consulting business.
You know you're talking what, 12 weaned piglets
percentile probably now three times a year.

(15:24):
I mean I'm guessing you're the expert here.
And what would it have been in the 1960s?
You know, half that, a fraction of that really.
I mean, you you go back
just to when I started in the industry 25 years ago
and we were giving people awards for doing 19 pig
for sell per year.
And now, if you're not 30 or close to it,

(15:45):
you know, you're having trouble being competitive.
So, yeah, it's it's really, remarkable
how we've improved efficiency.
But, you know, those incremental gains
are harder and harder to get.
You know,
I tell my clients
all the time, you know, going from 23 to 25 PPS
why is one thing going for 25 to 27 is a lot harder.

(16:08):
Right?
And so the better you get,
the more challenging those,
those additional gains are.
And so we need to keep driving on that.
But we need to understand that
as we get better and better, those,
incremental gains become more and more difficult,
to, to capture.
And so, again, we need to keep pushing.
Obviously,
we need to keep moving in that direction,

(16:29):
but that's it's not going to be enough.
Even if we could make the same kind of gains we made
in the last 25 years, in the next 25 years,
when your problem really
is not an insufficient amount of demand that,
you know, it's not about
not just supply, not you must misspoke, right?
Your problem isn't an insufficient amount of supply.
It's that demand is capped.

(16:49):
It's just it's just pretty much it stagnated.
So that thing you just said
before we hit record,
I mean, the person listening to this is
of course they like it when you and I
get out here
and talk about things
that are a little bit more mind
broadening on, like crap.
I've never had anybody think about this.
So I kind of said before we record, I imagine a kid
that's

(17:09):
got decent
athletic ability,
has never actually been properly trained,
and never had proper
weight training in physical, trainers
and then also never had proper diet.
You can take that kid
and in six months
time be like, Holy shit, look at this kid.
Look.
He developed a chest, got great big shoulders.
Now his speed went from about 40, 40 to 42.

(17:31):
He's taught him how to run.
We're.
Now imagine
the other side of that is
you go into an NFL locker room
with a person, is
essentially been a professional athlete
from the time
they got out of a big high school program.
I went to Ohio State
and then went to play for the whoever
it should be, you know,
the Detroit Lions, whatever the

(17:51):
they are already on a great diet.
They're already with the best physical trainers
in the country.
They are already
you're not going to get huge gains from them.
That is the athletic comparative to what
Todd just illustrated to go from 19 site piglets
weaned per side per year to 30.

(18:12):
That's a hell of a big lift.
We're not probably going to go from 30 to 41,
meaning grabbing another 11.
Actually basis to do the same percentage.
You had to go from 30 to like 45 or 6, right?
To get that same percentage of gain
in the next 25 years
is it's harder to do it.
It's harder to take once you've made the big leap.

(18:36):
Efficiency gains are harder.
And I think that's what you and I
are both driving at.
I don't think that they will ever be enough.
No, I don't think there's enough
efficiency gains to be accomplished
to make up for the problem
of oversupply and stagnating demand,
right. Yeah.
And I think that's that's really what it,
what it amounts to.

(18:57):
And as long as demand continues to increase and,
you know, one hour or one and a half or 2% a year,
then you know that that efficiency can help
you keep up.
I can help you,
you know, continue to produce, enough.
To meet that demand
without having to have, you know, unrealistic,
levels of,

(19:17):
you know, volume that you're dealing with.
And so,
but that's really
what we,
what we come into here is
we've got a situation where, that incremental gain
is going to be,
you know, harder to harder to capture.
And even if we were able to capture it,
that's really ultimately not the problem.
And again,
you got to keep driving there
because you've got to keep working on. No.
And there's always opportunity.

(19:38):
We say we've made, you know, these huge gains.
And and then we keep making gains and it's great.
But but you know
that's not going to solve our problem.
We need to keep doing that.
But even if we're
even if we're wildly successful,
we're still going to have an issue here
that we have to, we have to figure it out.
And it's really around the demand side.
What do you think?
I want to throw this out here.
Well,

(19:59):
it could be your career and mine, say roughly 25,
30 years.
It could be
you and I being around agriculture for, say,
50 years. Whatever. Let's just say the last 50 years.
I don't have the exact number.
Breaking it pretty damn close.
The number the the average margin.
Meaning the average actual return for production.

(20:19):
Agriculture in the United States. American.
I can go across
all things from livestock to milk to to, commodity,
you know, to grains to whatever.
I've got a number in my head,
and I want you to get a number in your head
of what you think that number is,
and then I'll tell you where I'm going with this.
But before I do that,
I gotta go into a quick break for Redox.
By the way, dear listener, you hear what I'm saying?
Get a number in your head.
What do you think

(20:39):
the actual margin profit
margins are, or return on capital?
I have been in the last 50 years.
I got a rough idea. Get it in your heads.
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What's your
what's your guess on about the the return
because you and I talked about
the returns are so paltry

(21:41):
most investors would never
even want to be in this endeavor.
Not to mention doing the the work of production ag.
Yeah, it gets a little complicated because, you know,
you wonder,
are you looking at
just the profitability on the production piece
or are you looking at,
you know, for example, the crop side now,
the appreciation of land and other assets,

(22:01):
it's a little bit different.
But I think on the production side,
you know, you're looking at
maybe a best case scenario, upper single digits,
in terms of profit margins. Okay.
So I was going to say
upper single digits, maybe 8 to 9%.
And this is why I'm going with this efficiency thing.
Almost everyone that's
listening that's been around this game long enough,

(22:24):
even if you're,
you know,
25 years old, you remember
being out there on the farm when you're 15
and how much more efficient you are.
Now, let's say you gain efficiencies of a few percent
per year.
That's pretty much reasonable, right?
You get you get 3% better each year
on the utilization of fertility,
3% better on we use less natural resources.

(22:45):
We use less iodine on the cows because.
And you also then get that
1 to 2% gain on production.
You make more pigs per sale.
You get more gain per steer in the feedlot
in Kansas with the same amount of feed.
What you and I are just saying
here's efficiency gains

(23:07):
alone
might be if it was a 2 to 3% gain
just on efficiency, that might have been,
responsible for one third of your margin.
And then throw in more consumption globally
because of a growing population or,
people eating a little better.
There's another couple
more than half of the margin of what we produce

(23:30):
in production.
Agriculture probably
came down to a little bit of gain
and kind of consumption
and a bigger gain and efficiency.
You and I are both kind of proposing that
we're about done with that.
Yeah.
And as you keep driving that down and margins keep
you get more consolidated.
The margin keeps getting smaller and smaller.

(23:50):
The opportunity
there keeps getting smaller and smaller as well.
And you know, you mentioned earlier
the low cost producer went,
I was told that in my first week
in the pork industry,
I was told, you know,
that's basically the game,
but the lowest cost producer wins.
And that was true for my entire career
still is true to a certain degree,

(24:11):
but it's becoming less true
and eventually it's going to be voluntary.
You know,
you're going to have to figure out
how to address the demand side,
or it's a matter of, managed decline.
I mean, there's,
there's there's no there's no two ways around it.
And, and a lot of this population stuff
and these things we talked about,
there's a lot of people to disagree

(24:32):
on kind of when this is going to happen
and exactly how it's going to play out.
But really nobody disagrees that this is happening.
Right?
We're really just having an argument
about how quickly is it going to happen.
And you know, how exactly is it going to play out.
Everybody, you know,
including the UN, agrees that this is the direction
that we're heading.
And so,
you know,
this is a discussion that's going to have to happen

(24:53):
at some point, no matter what.
So you so again, let's have it now.
And if I'm wrong and we have more we have extra time
then then great.
And if we don't then we're doing as best.
Or can you say that, Mr.
Thurman, I just had a conversation this morning
with an AG person that told me
that we were going to be,
at 9.8
to 10 billion mouths to feed and 26 years from now,

(25:13):
and you're gonna
you're always going to grab a number
that has a nice ring to it.
Y2K 2050, 2050.
The magical stuff's where it is.
And if you listen to the predictors,
we're going to keep gaining population until 2050.
And then at times like
because the population knows
that's the mid part of the century
where it can start changing bullshit.
Anyway, bigger thing here is

(25:34):
again, like you said, we're
not in any way arranging efficiency.
It's just that it is is no longer enough.
And so the person listening is like, all right,
you saying stop trying to get more efficient.
No, absolutely.
Keep keep dialing it in.
And computerization
artificial intelligence is going to help us.
So let's go with AI will get more efficient.

(25:56):
And then I want your thoughts
on what we need
to do in addition to efficiency gains.
I just threw out artificial intelligence
AI and I'm not an early adopter, but
I can already see where
it will give us efficiency gains.
Even now.
We certainly on things like document creation
and all that.
But even in production agriculture,

(26:17):
I see those kinds of technologies
making us more efficient. I assume you do to.
Yeah, absolutely.
And, you know,
it's it's
sort of hard to underestimate
the potential of a technology like that.
I mean, some of the stuff
that we're already seeing on the biology side, I'm
in terms of kind of accelerating
the discovery of new molecules and stuff like that.

(26:38):
There is there's so much potential
there that's hard to wrap your mind around.
And so we very well could be underestimating,
our ability to wring even more efficiency
out of the system.
You know, I was just talking to, a guy
a couple of weeks ago,
and I said, I look back, I'm at that stage.
I've been in the industry 25 years, and we start,

(26:58):
we're kind of reflecting.
And, you know, I look back on my career
and I think 25 years ago,
some stuff we wouldn't even recognize today.
And some stuff is pretty much the same.
Right.
So, there's definitely, definitely opportunity.
And I'm very bullish on,
some of those technologies
to be able to help kind of,
have that come to fruition.
But,

(27:20):
you know, really, as we start thinking about,
you know,
you mentioned the 2% number,
that's pretty much where we're at, pork
and the pork industry.
We're producing one and a half to 2%, more pigs,
every year or more pork every year
with the same number of cells. Right.
And population growth is not growing that fast.
And, and so, you know, as
you know, things starts to play up that additional,

(27:42):
growth is, you know, becomes a bit of a liability
in a way.
And so we have to start thinking about how do we
how do we scale back
or how do we increase, consumption.
And I think, you know,
the other thing
that we
that we try to mention
and run a lot of these, podcast,
when we talk about the population,
it's not just the population size,

(28:02):
it's the makeup of that population.
And that population is aging quite rapidly.
And that's a real challenge
because older people eat differently
than younger people.
And so,
you know, as we think about consumption,
agriculture's unique.
And, you know,
we talk about
agriculture is probably not
unique, is as unique as we like to think it is,
but it is unique
in one way or somewhat unique and one way.

(28:23):
And that is that there's a sort of a biological limit
to consumption. Right?
There's really no,
you know, limit necessarily to the amount of TV's
you can consume or hours
that you can consume or really,
you know, anything else. But.
Well, the limit, of course,
there's a limit to the amount you can consume.
The limit, of course, would be space or
or free dining answers. Right?
I mean, I could have 100 TVs.

(28:46):
I have a barn out here with lots of space.
I could put 100 TVs at
how they how I would use them,
or how I would even try to get the electrician
to come out.
And, you know, I mean, do some of circuits.
But yes, there's no limit to that.
There's a limit to how much I can eat at some point.
My God, I just, you know, I, I'm laying there with,
you know, I'm, I'm gorged.
So yeah, that's that's one uniqueness.

(29:07):
And I think we should go back to that
efficiency thing
is the person that might quibble with you
and I and say,
now we can still wring a lot more,
out of this thing. On efficiency.
Sure.
Yes. We both.
You know, I was a DuPont sales intern in 1991,
and I can tell you that the way
we utilize chemistry,
these see, and spray sprayers, for God's sakes,

(29:29):
that they're,
you know, the John Deere has where it sees
that weed and sprays it.
So you're talking about spraying only one tenth
as much instead of 43,560ft² getting sprayed.
You're only spraying where it needs to.
No, no disagreement from Todd or I that there's
a bunch of things will get even more efficient about.
But to touch point those are incremental gains

(29:53):
in efficiency, not monumental gains in efficiency.
When you went from, you know, 1950s of,
you know, 20 pounds of milk produced per cow
or I'm not sure it was even that per year or two
per day to today, 90 pounds of milk
produced per cow on a modern dairy farm.
Those are monumental gains.

(30:14):
We don't go from 90 pounds of milk per cow per day.
Same ration,
lesser fraction to 200 in the next 40 years.
Or it's almost physiologically impossible.
Yeah.
And and and
ultimately at the end of the day
it's to what end you know
so we we're on the record getting we are so damn much

(30:35):
getting really producing
something that nobody wants to, you know,
nobody wants to continue our.
But we need to get much, much more of it
than than what, people can consume.
So, yeah.
So even, you know,
even if we're, we're way underestimating
the sufficiency.
You know, it's
at the end of the day, you're
producing a product that is in surplus

(30:56):
and, you know,
and then the solutions to this, the,
the obvious solutions are not going to be ones
that are going to get,
people in the ag industry excited.
I mean, you know, you've mentioned quotas before
and you've asked me on several occasions,
is that where we're headed with this?
And my answer,
I think, is always been,
if we don't come up with a better
answer, then, yeah, that's where we're headed.

(31:17):
And I don't think that's a good answer.
I don't think that's a good solution.
But, you know, if
we don't come up with something better
than then, that's certainly where we're headed.
And that's really what we're trying to say is let's,
let's have a robust discussion
about what
this is going to look like in the future
and start thinking through some different strategies.
There would be a lot more, that would be a lot more,

(31:39):
friendly from a from a
production agriculture perspective.
Okay.
So when efficiency gains again,
I think I reiterate it.
You know, you can go out from any side.
We both agree that there's efficiencies to be
ha harnessed.
Yes.
Absolutely. Again just talking about crop inputs.
Better absorption
of the crop inputs, less ounces per acre

(31:59):
because being so strategically and meticulously
and accurately applied.
Absolutely.
Diesel fuel.
We use a we use a boatload of diesel fuel.
There's efficiencies to be gained there
that keeps taking expense out of the pie.
But like you said,
generally efficiency doesn't

(32:21):
just mean using less resources.
It means making more with less resources.
And you said, to what end?
And I'm sure you made some people mad
when I said, making all this million,
you said you're making something nobody wants.
You didn't mean nobody wants.
It means we're already saturated.
We've already got as much of
the stuff as we can consume.
You know, and we need
to we need to look at

(32:41):
how do we, you know, can drive
consumption up as well.
I mean, that's certainly,
something we need to do, work on
and continue to work on.
I know I've harped on this, population dynamics
and how the the age is changing.
We need a lot more research on to better understand
what's going on with these older, consumers.
And you know, how they're,

(33:02):
you know, how we can meet their needs better
meet their needs.
I mean,
we think about, on the on the meat side, protein,
you know,
muscle loss in, in older folks is a huge challenge.
And I think a big part of that is
they don't get enough protein, you know?
So how can we, you know,
how can we figure out ways to, you know, help them
increase their, their protein consumption

(33:23):
at those older ages?
Those are things that we really need
to be working on.
So as we sit here and talk about, okay, well,
what are the solutions?
Well, it's about,
you know, increasing demand
where you can on a per capita basis
because we,
we know that the that the mouths, the,
the number of mouths to feed
is going to begin declining
at some point in the, in the future, whether that's,

(33:44):
you know, 20 years from now
or 30 or 40 years from now, that's the debate.
But it's going to happen,
and it's already happening
in some real key markets around the world.
And I think that's the other key point to make
is that
this doesn't just tip over
when we have a global population,
begin to, move the other direction.
It's a it's a process.
And we're already well into that process.

(34:06):
About a third of the population lives in a country
now that's already in decline.
And so when we think about this from a global,
you know, standpoint,
we're we're already beginning to move,
down that path.
And so increasing that per capita consumption,
I think is an important piece.
But then we have to start thinking about
how do we increase the value of the,

(34:28):
the stuff that they are consuming.
That's okay.
I, I was going to go with two things
I was going to go with.
Well,
the first one you already mentioned,
you and I recorded an episode
and we recorded a sequel to it called oversupplied.
Is the globe oversupplied on everything
agriculture produces?
And then we came back the next week and said,
what if we were wrong and we're not oversupplied?

(34:49):
And here's why.
Well, one of the things that we said
and the oversupplied was,
is the answer going to be a quota system,
a supply management system.
And if you're not familiar with this dear
listener and viewer, look to Canada.
They've,
they do it on dairy
and they do it with all things,
with feathers, poultry and, eggs.
It's a it's it's a supply management system.

(35:10):
It fixes supply that's roughly in line.
Almost exactly in line with what demand is.
And therefore you can't you could produce more milk.
Jingle bells sell it
because you're on a quota system.
And that way keeps your price up.
It gives you it gives you,
an expectation of what the return is going to be,
and it gives you a profit.

(35:31):
What it also does
is it creates some inefficiencies
because just like everything
that seeks
to do a price floor,
a price ceiling to circumvent true market forces,
create some inefficiencies, rent controls
or minimum wage would be other examples of that
where it's,
gee seeks to circumvent,
the true forces of, supply and demand.
That's one answer.
The other answer is

(35:52):
you just said about the country, the world wants
to, by the way, about the efficiency gains
and the quota system.
You said you'd like to not see a quota system.
What's your prediction?
You told me. In the other one, I put a quota.
I put a supply management system.
A almost
I'll put it at almost
50% chance of happening in the next decade

(36:13):
in the United States.
No, I wouldn't I wouldn't argue with that.
And the main reason I wouldn't argue with
that is because
there's not been a viable, alternative proposed.
I mean, but the same thing on the more
the broader, economic issues,
you know, they've
they've talked about UBI
or universal basic income and,
you know, what's the chances that's going to happen

(36:34):
if we have,
you know, job loss
as a result of some of these new technologies?
Well, you know, I'd say my answer there,
we don't come up with a better option
or we don't come with a free market solution.
Until that problem,
then the chances are virtually 100%
we won't have any other,
you know,
there won't be any other,
option for from a policy perspective, to

(36:54):
and so that's really ultimately
one of the main things
that I'm trying to advocate for
is let's try to come up with some solutions that are,
you know, capitalist friendly,
that are free market friendly,
that we can, that we can provide,
hopefully a more
palatable alternative,
but we'll certainly be
more palatable to the production side.
But also on the consumer side,

(37:15):
because I really think that's that's important.
Okay. I'll throw another one out there.
We know that any place
like the United States in particular,
but even Mexico somewhat now in China,
a little bit in Canada,
obesity is one of our biggest health concerns,
not only about,
you know, oh, boy, the people are starving.
They're not only not starving, they're obese.
There are probably

(37:38):
this has half of the world's population
able to eat more.
When we talk about
if we always want to keep on cranking out stuff,
we still can sell more food per individual
where they're not obese,
but also just call it India, for example.
They got a rising economy and a populace

(38:01):
that's probably capable
of eating another few hundred calories per day.
Throw.
Throw 3 or 500 calories
per day over 1.3 billion, Asian Indians.
You sold a hell of a lot of food,
but there's a
bunch of
people that could eat more
that can't afford to do so.
So it's the that's the quandary.
Yeah.
And, you know, and all these conversations

(38:23):
then don't come back to the same, spot really,
you know,
and from a, from a population perspective, it's,
it's really
how much economic development
are we going to be able to manage in Africa?
And is Africa going to be able to come through
with the kind of growth that we saw in,
you know, Europe a couple hundred years ago

(38:44):
in, in Asia over the last, you know, 30 to 50 years.
You know,
are we going to be able
to see a similar type of thing there?
You know, I hope so.
And I'm actually quite,
you know, fairly
bullish on that compared to a lot of,
other analysts.
But we have to understand that that's coming,
if that if that materializes,
even if that materializes, it's going to be coming,

(39:06):
it's going to be offset to some degree by our,
reductions in other places where we're seeing
because of population aging,
and because of population decline,
we're going to see
and Europe
in East Asia at the same time that hopefully,
Africa is really, you know, exploding.
And, and taking advantage of that, potential

(39:27):
that's going to be offset in some degree by declines
and Europe and East Asia and then ultimately in
other parts. Well, and also
it's there the economic part of it.
I mean, it's hard to say.
Well, we'll just keep getting more efficient.
And,
you know,
maybe we can still sell
$9.60 soybeans and make money on them
if we keep getting more efficient.

(39:48):
And of course, you say to who?
And you say, well,
the globe's oversupplied on soybeans,
and then you say,
and also the people could eat a few more
soybean derived products, which I guess would mean
soybeans mostly go to livestock
or even some sort of a soy based protein product.
They can't afford it.
So you can be as efficient as you want.
But if the remaining consumers that are out there

(40:10):
that need more food can't pay for it,
you want to give it away,
then your efficiency, then that in the 2% efficiency
gains, you just, accomplished are meaningless.
Well then
ultimately just drive down
profit margins even further.
Till it gets to the point where you,
you can't afford to, to produce it at all.
So yeah, I mean, and and the other big,

(40:32):
big macro question, that, that
we don't really have a good answer to is
can we continue to grow economies,
you know,
roughly the same rate
that we've been growing our economies
with without that population growth
as an undercurrent, you know, and,
I certainly don't have the answer to that question.
I think anybody else answered that question.

(40:52):
That's that's not even my that's not even my field.
But,
you know, that's very much a,
a question, an open question.
And I think probably the answer is yes.
We can probably continue to grow economies.
We're probably not at the same pace
that we have in the past.
And so again, that's one of those, you know,
going to be fewer people
ultimately is going to be fewer people consuming.

(41:15):
And then the big question then becomes,
how much are they consuming?
And in the traditional model
and then if that's not keeping out,
then the only other place we have to go
is to increase quality
in a way that people
are willing to pay a greater, premium for that
so that we can, keep our profits up without
having to increase.

(41:36):
And so
that's really where
that's really where we need to be focusing long term.
That's what we've talked about,
making that transition.
And it's essentially what we're talking about.
But but our systems aren't designed for them.
Our systems aren't designed for quality.
You know, we've talked about on the pork side,
what do we need to do to increase meat quality?
Well, none of our systems are oriented that way.
We have to change the incentive structure

(41:57):
in order to do that.
And those are hard things to change,
even if you want to.
Even if the meat is obvious there,
those things don't turn around a lot.
So, and every different commodity has there
there are opportunities.
Do you think Marco's idea there is, though
there's still people are listening to saying, well,
we'll just keep it more efficient.
It work
that they

(42:17):
they really believe that, or it's
just because they want to believe that.
Because that's kind of what we've always told,
you know, and I you said you heard of your first day
in the business,
and I've been here my whole life,
low cost production. Be efficient, be efficient.
There's a General Motors truck plant
25 miles from my farm,
and they're pretty efficient at making trucks.

(42:37):
Even with the UAW contract
that they get to pay 40% more now
for, and, you know, like, well,
what have they cranked out
five times the number of trucks
that they do right now?
They still have cost.
And every one of those trucks
a little less,
because with every,
you know, incremental unit, you get less, you know,

(42:59):
economies of scale, cost per unit go down.
But at some point
there's only so many trucks that can be bought.
And that's where we've got to start looking at this
I see quota system.
I also would say efficiency gains.
Yes.
Where I, I think that some acres leave,
I think some marginal acres will have to exit.

(43:23):
I think some marginal hog producers
will have to exit.
I think maybe it's going to be a combination
of all those things. It's going to be a quota system.
A push for a quota
system is going to be maybe,
there's some government programs
and there's going to be some idling of,
of the only problem is what usually gets idled
is the least efficient stuff,
which means you didn't really take a whole

(43:44):
hell of a lot of supply out.
Yeah, I mean,
that's
essentially what we're saying in the, in the
and I keep going back to the pork industry
because I know it.
But it's also a really good example,
right now of what's going on.
And, and essentially we've had a really hard time
decreasing our production.
Right.
So we've taken sales out,
but we just keep getting better and better.

(44:05):
And we, we wind up,
we took sales out, but we keep producing more pork.
You know, we, you know, we had a record.
Bad year, the worst year.
You know, from a, from a profitability standpoint
in the history of
but at least the modern history of the,
the swine industry, in the US.
And we produced more pork last year

(44:25):
than, than we did the year before, you know.
And so and that's and it's not because we didn't
took sales on the system.
We did takes on the system,
but we just keep getting better.
Yeah. Efficiency wise.
And so,
you know, we're we're not taking enough
sales on the system
to actually adjust the volume of pork producing.
And you know
and again
some of that sounds
you know, some of this sounds crazy.

(44:46):
It just sounds because
because we've not experienced that.
But if you look in for an example
and look what's going on in China right now
in terms of, over capacity,
you know, they've got a real problem.
They're really good at producing,
you know, electric vehicles and solar panels
and some of those things,
but when there's not demand, then, you know,

(45:07):
where are you going to go with that?
And, and so many of these solutions,
we talked about it on the, on the back side,
but on the, you know, if you think about it from a,
from a macroeconomic perspective in China
right now, that's the discussion that they're having
is, you know,
I keep talking about these challenges
that they had from a demographic standpoint.
And then everybody was always
push push us back and say,
oh, well, they're going to find,

(45:28):
you know, they're going to do,
you know, robotics and automation
and all that kind of stuff.
Well, that's great. That helps you produce that.
But who's going to buy this?
Yeah, right.
Robots don't buy that stuff.
They can they can solve that side of the equation.
But the demand side of the equation
is much harder to solve.
I made this point to, some friends of mine,
they're having a discussion
and they want to get into the next thing
whatever was producing something.

(45:48):
And they were going on about.
And I said, all right,
what do your numbers look like?
You think, well,
it looks like good, I said, but we
and it went right to.
But we can get more efficient at making it.
And I said, I'm not being mean.
I should tell you what I know.
What we've always done that is make more
with less
and assume that there's
going to be a place to put it.
And I've been preaching now
to my audiences for more than a decade.

(46:10):
We finally admit that making stuff
isn't our challenge.
I'm not saying it's not hard.
I'm not saying that we don't work hard.
I'm not applauding the technology.
Like I said, we were talking about everything
from the chemistry to the input to the biologicals.
Now that like companies like redox, it's amazing.
But making stuff is not the challenge that it was.
You brought up the China thing.

(46:30):
China's factory floor
and our fertile fields are kind of the same.
Exact or productive
hog barns are kind of the same problem.
China's economy right now has got a problem
because for years they built up this thing
of, let's keep making a bunch of crap
and figure out
some place in the world is going to buy it off.
This.
They're run out of people to buy the stuff,

(46:51):
run out of stuff that it needs bought
and and, and and again, they keep making
they get better at making.
They're better at making kick balls
and hula hoops and,
and and cheap bicycles and, like you said,
solar panels
than they've ever been.
Yeah, yeah.
And again,
it just goes back to what I said,
you know, at the beginning is,

(47:12):
is we keep coming up
with supply solutions to demand problems.
And, and that's because we've,
we've never really had demand growth.
Yeah.
We've had
we've had cyclical demand problems
but we haven't had fundamental demand.
And until now it's almost been a non-issue really.
It's just,
you know, it's just the only question was how do we

(47:32):
how do we produce enough to meet demand?
And how do we do that more efficiently
so that we can,
you know, ring a real
a profit margin out of, of that production?
And now we're shifting into a very,
very different environment.
And we're trying to use all tools in a, in a new,
you know, for a new problem.
And those
all of our tools are designed
for a completely different, problem.

(47:54):
And so we need new tools.
Our tools have always been make more with less.
And by God we've done it.
So I said I predict a
and I could probably say five years.
I said ten, but I could be five years.
I said, there's going to be a push.
And I think it's because of the money.
Honestly, I think that maybe the agricultural
finance sector is going to say
we can't go through the 80s again.
So either
you gotta come up with a bunch of government programs

(48:15):
that keep subsidizing the hell out of AG.
Are you going to have to, set up a quota system so
we keep margins up
and that's there won't be a huge discussion.
I see government
programs idling acres
and maybe a doubling of the CRP is right now
23 million acres.
We could take out that much again and then take some
of course,
usually takes crappy acres off the off the shelf.

(48:37):
I'm sorry.
Puts them back,
put them on a shelf and they don't get produced.
And then obviously a flight to quality
where we're worried less about quantity
and we start talking about nutritive nutritive
value of food is just number two, yellow corn.
Maybe we
you know, we've got some other factors
in there about things
like protein content like they do in the
in the wheat market where you get paid
a bonus over a certain amount, you get docked.

(48:57):
If it's below a certain amount,
I could see some of that, which then
it alters it.
It alters it from
being just about efficiency gains to quality gains.
And I could see some of that, helping us out.
Those are my three things.
Or four where yours.
But I think I think you're exactly right.
I think it's really important, though,
how that other solutions are framed.

(49:21):
Right.
And so if you said, okay, we're going to
we're going to add to the CRP program.
If that's framed as a temporary, you know, stopgap
solution, to kind of get us through this transition.
But we really need to be thinking about, you know,
what are some more permanent solution
to this problem, then I'm perfectly okay with. Right.

(49:41):
But if it's, you know, this is
this is the way we're going to do things.
This is the long term solution.
I don't think that is the long term solution.
I don't think you can continue
to just kick the can down the road that way.
And so if some of these, these interventions are
even if it's a quota,
you know,
if you say, okay, look,
we're going to institute this five year quota system,
but we need to use the next

(50:01):
five years to try to figure out
a better solution,
a more permanent, a more sustainable, a more market,
you know, free market friendly solution.
I think that's where we need to push,
from a policy perspective,
to, to utilize those tools
on a temporary basis
and make sure that we're actually taking steps
to come up with a more,

(50:22):
long term, more sustainable solution.
By the way,
to all
the ones that I just mentioned
are really U.S specific.
It's where you and I both,
you know, live you work globally more than I do,
a quota system, a CRP, a government,
new policy or, even a rewarding system with the great
uncle.

(50:43):
Those only work here.
In other words, Brazil is gaining efficiencies
every day on their production of crops
and still willing to flood the global market with it.
Which means it still depresses, commodity prices,
which are already under pressure.
So efficiency gains aren't just happening here.
We we lead
we like to think we lead the world

(51:04):
in technology and agriculture production.
In many ways we do.
But those efficiency gains
are happening in Kazakhstan, too.
Yeah.
And that's a
it's another it's
a really good point that I think doesn't
get mentioned very often is.
And when I've been talking about China
on a from a demand standpoint,
they're proving their efficiency of production

(51:25):
in every commodity that I can find, every, you know,
important commodity that I can find.
They're getting better and better,
and so is their,
they're going to start
seeing a real potential
in a lot of these commodity
needs to become self-sufficient in the coming years.
And when I say the coming years, I'm talking,
you know, 5 to 10 years, not 30 or 40 years now.
And they're making real progress,

(51:45):
you know, and they've got,
you know, they're making progress, kind of in
an earlier phase of what you were talking about.
So they're making bigger
and bigger and bigger game leaps, bigger and bigger.
And so of them.
And now you have the benefit of
of seeing how the rest of,
the developed world has done it. Right.
So it's just a matter of implementing them.

(52:06):
I'm seeing that in my business in China.
I'm seeing massive improvements in productivity.
And so,
you know,
that's that's another thing
that, you know, when you look at it globally,
you know, it's not like any rest of
the world is sitting on their laurels.
Everybody else is making progress, too,
whether that's Brazil, who is arguably, you know,
taking over the leadership position

(52:27):
in some of these commodities.
Or whether that's some of these more
developing countries
that are doing a better job
of meeting their own demand.
You know, one of the things you look at with Africa,
you know, how much of that
they're on demand,
are they going to be able to, produce themselves?
Because a lot of times people think of Africa
as, you know, a big desert.
It's not
there's a lot of productive capacity in Africa.

(52:50):
So if they can get their act together,
from an economic perspective,
they're also going to improve their,
their productivity.
And so,
you know,
we can't just assume that
whatever growth is there
is, they're going to have to come to us
and Brazil and,
you know, whoever they export to Europe,
they'll go through those efficiency gains
that are monumental efficiency.

(53:10):
Because remember,
your first efficiency gains are on a percentage basis
bigger than the ones.
Then you're making 60,
80 years down the road
when it's like, yeah,
we we figured out a way to grab another bushel
and a half or whatever.
Yeah.
Your first ones are you're
always usually your biggest ones.
So anyway, that's for your your prediction is
you didn't give me a prediction.
I told you I gave a prediction.
Your prediction is we continue to get more efficient

(53:32):
and but it's still not enough to keep agricultural,
production agriculture profitable
because we are attempting to fix
a demand problem with a supply solution.
Yes.
And so ultimately,
we have to either come up with a mechanism
to manage our supply decline,
or we have to come up with a way to continue

(53:53):
to increase,
demand, either on a per capita basis or on a value
based on.
So probably both, and in order to, to offset that.
And so, you know, I think again,
the answer is all of the above.
Right?
We need to
we need to do a little bit of all of those things.
And, and and you know, that's probably the solution.

(54:14):
But but ultimately it comes down to,
it comes down to that per capita demand
in some of these developing markets,
most notably Africa.
And how do we make the shift
from quantity to quality?
And again,
I'm not prescribing what that looks like that
that's going to look good,
different for every commodity

(54:35):
and probably every country
and all that kind of stuff.
But, that general shift has to happen.
And for me,
that has to happen for agriculture
to continue to thrive,
you know, in the next, you know, 70 or 80 years.
Yeah.
And I think I should throw out to people
that you and I both agree, it's kind of, a

(54:56):
from a political and or a national security issue.
Neither Todd or I are advocating that we just stop
producing the American.
The United States should be a leader in agriculture,
and we do lead in technology development.
That creates efficiency gains. Yes.
And we should never, ever decide
that we shouldn't do that

(55:17):
because you don't want to ever get to a situation
where you're depend on other countries
that might be hostile to you
to be developing those efficiency gains.
So I think that's an important,
disclaimer right there. Right?
Yeah.
We have some, you know, massive advantages.
You know, we've talked about it before.
You know, we're really good.
We've got good people, we've got a good system.
We've got a pretty stable political system.

(55:38):
I know it's the day before the election.
We're recording this,
and I know I probably didn't feel like that,
but compared to most of the rest of the world,
we've got a pretty stable political system.
We've got a very strong economy,
and we've got amazing natural resources.
So, you know, we're we're set up to win here.
So this is a positive.
This is a positive story.
It's just a matter of navigating

(55:59):
how we get from where we are
now to where we need to be.
But we've got a ton of advantages,
and there's no reason not to be optimistic.
If you're a North American agriculture.
We'll leave it right there. Yeah.
It's it's a
the problems that we have to manage of oversupply
and being really damn good
at production agriculture and getting,
to where our efficiency gains
are more incremental versus monumental.

(56:20):
That means that means we've
we're we're already the professional.
We're already that professional athlete
that we just talked about.
All right.
Remember my friends at Redox,
they're a sponsor of the show.
Go to RedoxGrows.com/midwest.
Also go to TruterraAg.com.
And then of course my friends Pattern Ag.
They are a leader in, advanced
soil analytics, predictive analytics if you will.
So you know what's going on out there in your soils,

(56:41):
if you'd like to join the Business
of AG Success Group,
and you could be with me
and Todd every other Friday, twice a month,
we get together on a zoom call
with, industry experts,
and we talk about things
that are impacting this industry.
We got great guests, we got great dialog.
We got a bunch of it's a network of ag professionals.
It's only $99 a month.
You know why there's no subscription.
So you can come and join us.
And if you don't like it
after a couple months you can hop out.

(57:02):
But we know you will like it
because you're going to join the smart conversation.
His name is Todd Thurman.
You Want to find him. He does speaking.
He's got, a blog that I like.
He's got two,
but there's only one
that I actually pay attention to. Again, it's named,
the AG Futurist blog.
And you can go to the, my website, ToddThurman.me
and,
all the contact information

(57:23):
there and links to the blog.
Till’ next time, thanks for being here.
He's Todd Thurman, I'm Damian Mason.
This is the business of agriculture.
Well, that concludes another fantastic episode
of The Business of Agriculture.
This episode was brought to you by Pattern Ag.
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