Nowadays agriculture has become a hot topic in every aspect. The vice head of China Agriculture Department said China had no choice other than restrained and rational counter-measures in import of agricultural products from US. However, China will continue conduct active, reliable and well-aligned opening policy to other countries. China has raised tariffs to 90% of agricultural products imported from US. Soybeans and corns produced from American get substantially hit. Due to the raising tariff, American soybeans has lost their price advantages when export to China. Other variety meats like feet, heads, hearts, tongues, kidneys from pigs were down to 0 due to the tariff issue. And Maschhoffs, world’s largest pork producer, said they lost $30 million impact because of losing Chinese market, making up a third and as much as half of Maschhoffs’s profit.
During our staying in the States, we had chances to visit agriculture machinery dealer, corn and soybean processor, farmer association, and as well as farm.
In our visit to Gibson city, we met Tracy Epps, the president of Bank of Gibson City and Steve Kelly, the president and CEO of One Earth Energy. Tracy gave a presentation about how local banks give financial support to farms and other farming companies like One Earth Energy. Tracy drew a big picture of American farming industry. Central Illinois is the ideal place for agriculture due to the big plain and weather. On average, each farm has one to ten hectares land, most of which grow corns and soybeans. 80% of all the productivity here export to China. The surplus corn would be processed into corn oil for burning as renewable energy. Supply water, natural gas and electricity are other major inputs of coin oil, ie. ethanol. Mr. Kelly said they understood that being comfortable with certain risks when running a company. It took them 18 months to build the new floor and the angel investors and banks were reluctant to bear the potential risks. As a result, they retreat after the original shareholders brought back their shares. One Earth Energy were able to produce 115-million-gallon ethanol each year at a price of 90 cent a gallon. The company helped absorb a lot corns and grains as their raw materials. They also manage their business risks by using futures and other derivatives in Chicago Board. Since their module is so successful and now OEE is seeking to expand their business in the neighbor states. OEE developed the agriculture products into energy end other than the conventional use as food or fodder.
In Gibson City, we had another visit to Birkey’s farm store. Headquartered in Champaign, Birkey’s store has grown to 17 stores, selling CASE agricultural and construction equipment. The store in Gibson is just like a 4S dealer store of brand automobile. Because the store not only got many inventory, but also provided full-service from selling to maintenance and rescue. All kinds of agricultural machines ranging from giant combines to lawn mower and components. The price is much expensive than a vehicle. On average, the machine money value of a normal farm in Illinois is far beyond one million US dollar.
Now let’s turn to farmers. The farmers in Illinois are well educated. They have full information of the coin and soybean markets. I had a chance to attend a seminar held by Farmers Business Network. Just like I was sitting in the college classroom. The expert discussed how trade war with China affect their export volume with the farmers. And they also talked about how to make use of futures and other derivatives to hedge and speculate. This is far beyond my imagination. I could imagine that our farmers do that and riding Harley Davison. The speaker reminded the audience to watch a few factors that might affect the price of coins and soybeans: tariff, domestic end-users’ favorable margins; USDA report and so on. FBN also provided consultancy services to farmers to help them conduct better marketing strategies. Both the farmers and intermediaries are very professional, which impressed me a lot.
Now I am looking forward to visiting local farm and have a close look at how they run their farming business.
