KANSAS CITY, MISSOURI, US — While recent geopolitical events have created "historical shifts in global trade flows, US agriculture nonetheless finds itself in a good place with strong demand, Jay Debertin, president and chief executive officer of CHS, Inc., told an audience of 200 during his keynote address for the Federal Reserve Bank of Kansas City’s 2023 Agricultural Symposium on May 23.
The symposium explored the factors driving changes in where and how agricultural commodities are produced, disruptions that are leading to further geographical changes and the role of investments and farm policy in the years ahead. The bank is one of 12 regional reserve banks that combine with the Board of Governors in Washington, DC, to make up the US central bank.
Debertin, who heads a diversified global agribusiness and the largest farmer-owned cooperative in the United States with revenues of $47.8 billion in 2022, said during his speech that the geopolitical disruptions to trade are unlike anything experienced in recent decades.
Beginning with the tariff-riddled trade rift between the United States and China that started in 2018 and following Russia’s invasion of Ukraine in February 2022, trade alliances have shifted dramatically as the global agriculture market finds itself caught in the middle.
“Trade flows change and fluctuate – they always have – but these recent shifts are historical in speed, scale and market impact,” Debertin said during his address. “Today, both Ukraine and Russia are top exporters for global grain markets, but as the war drags on, Ukraine’s harvest will likely to be down roughly 20% in 2023, and exports out of the country are estimated to be down a third of a normal year’s production. Lack of access to finance, fertilizers, fuel and labor and having to navigate mines placed in the fields – the impact on the Ukrainian farmer is tough, really tough.”
Russia and Ukraine combined for about 30% of global wheat markets before the war, while Ukraine is a major shipper of corn and the top producer of sunflower oil. With even fewer acres planted in Ukraine this year, losses will need to be made up elsewhere, Debertin noted.
“Large trade flows will have to change, and there are not many places that you can get large volumes of grain to replace the volumes lost, so it really is down to South American countries and the US, with parts of Europe and Australia contributing,” Debertin said.
Despite these macroeconomic challenges, US agriculture finds itself in a good place, he said.
“The combination of higher input costs, high commodity prices and volatility have placed a premium on the grower’s ability to manage margins,” he said. “Tight balance sheets for grains and oilseeds will continue, but despite these headwinds, 2022 marked the best year on record for inflation-adjusted net farm income since 1973, as strong global demand and high prices for commodities drove profitability for many growers. The USDA is projecting farm income to decline in 2023, but nonetheless, US agriculture has been in and remains in a very good window.”
Based in St. Paul, Minnesota, US, CHS earnings have been following the ups and downs of the markets as well. CHS posted an increase in net income during the second quarter of fiscal year 2023 ended Feb. 28, boosted mainly by its Energy segment, while earnings in its Ag segment declined from a historically high position from the same period a year ago.
On April 5, the company reported quarterly net income of $292.3 million, which compared with $219 million in the second quarter of fiscal 2022. The Energy segment saw pretax earnings of $264.8 million in the second quarter, nearly doubling earnings from the same quarter in 2022. However, CHS’ Ag segment saw pretax losses of $81.6 million in the quarter, representing a $136.7 million decrease compared to the same period in 2022.
“The strength of our diversified portfolio offset margin pressures experienced within our Ag segment, particularly wholesale and retail agronomy products,” Debertin said at the time of the report.
The company has several expansion projects that will impact the Ag segment. In January, CHS announced plans to begin construction this spring on a 1.1-million-bushel grain shuttle facility in southeast South Dakota, US, that ties into an existing rail loop used for the company’s agronomy operations. It also announced its intention to expand export capabilities of its joint venture, TEMCO LLC, with the addition of Cargill’s export terminal in Houston, Texas, US, which will provide additional shipping access for grains, oilseed and byproducts through the Port of Houston.
CHS operates 230 licensed grain storage facilities, including 214 country elevators, with a total storage capacity of 403.01 million bushels, according to Sosland Publishing Co.'s 2023 Grain & Milling Annual, making it the second-largest grain storage company in North America.