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Geopolitical consultant addresses Soybean Expo

FARGO — It will be great to be a U.S. farmer in the next decade, if half of what Peter Zeihan predicts comes true. And it won’t be much fun to be in Canada, China or Europe.

Zeihan, an Austin, Texas-based political and industrial affairs consultant was the keynote speaker at the North Dakota Soybean Expo Feb. 18 in Fargo. While many in the ag industry say his predictions are sometimes unconventional, his presentations draw strong interest.

He told event goers Feb. 18 that America’s rise in shale oil production will make the U.S. economy more energy self-sufficient and will take away the incentive for the U.S. and its military to continue to keep all global trade safe, cheap and possible for many trading entities.

He also said agricultural competitors such as Brazil, Ukraine and Russia will fall away because they won’t be able to compete in a changed trade environment.

“The only export-oriented industry in the United States that I see really having a future is agriculture,” Zeihan said to a crowd of about 200. And the primary target for U.S. grains will be growing economies in southeast Asia.

U.S. trade dominance

America has had natural trade advantages, Zeihan said, with 14,000 miles of navigable waterways, including navigable rivers. The rule of thumb is that it is 15 times more expensive to move freight by land than it is on water, when all road costs are included.

Shale oil expansion in the Bakken fields is a game changer because it takes away America’s need to protect all foreign shipping, including the competing Saudi Arabian shipments of crude oil, which Zeihan predicted will drop to one-third of current volume. He said shale oil is becoming more politically acceptable because underground water storage is being proven safe and because of technological developments of nontoxic additives.

Canada is facing an aging crisis, except for Alberta, which is getting younger and more highly paid, Zeihan said.

Much of Alberta’s output is for export, so it needs lower taxes for growing families and a weaker Canadian dollar to support all of its oil, gas and grain that is exported.

Zeihan said Alberta’s secession from Canada is going to be the political discussion in the next five years. Others in the industry, however, say his assumption most likely doesn’t take into account federal government counter-moves to keep the nation together.

“You guys have been complaining about the shale industry sucking up all of your rail transit,” Zeihan said. “If the Prairie (provinces) secede, the amount of capital that will flow into the prairies to take advantage of the fact that grain can be sold in U.S. dollars from the get-go, is going to be huge. The amount of output from the prairies is going to explode. The problems you are having with shale is going to seem like a faint happy memory.”

Competitors’ troubles

Stability of agricultural competitors is an issue.

China is in pending trouble, with its consumption boom related largely to a five-year population bump before implementing its one-child policy, Zeihan said.

“There’s nothing coming up the pipe,” he said.

Mexico is going to be one of the fastest-growing economies for the next 30 years because its labor costs will become cheaper relative to China, where government-imposed demographic imbalances have increased labor costs by a factor of six in the past 12 years.

Southeast Asia is an important buyer of American soybeans and other ag goods because it can’t grow its own food, Zeihan said.

“Young and hungry and urbanized — a perfect market,” he said. He thinks it’ll be the core of another free-trade zone.

Brazil is a big competitor but doesn’t have water transportation access, and its geography is too steep to have a rail network.

Zeihan didn’t mention biofuels in his speech, and no one asked about it in the question-and-answer period. Asked about it after the speech, he said, “That’s an American political question. There are 11 farm states that pool their votes on the farm bill, and if they don’t get what they want, they cause problems elsewhere in the budgetary discussions. Biofuels are a red line for them.”

Meanwhile, rural America and its agriculture will continue to be a haven for capital, he said. During the 1990s when the Russian economy collapsed, $5 trillion of foreign capital fled to the U.S. — nothing compared to what is coming, he said.

“One of the places foreigners really like to put their money is farmland,” he said.