Grain markets can be complex, but there are times when simple economics are all that’s needed to describe a situation.
If supply grows faster than demand, then prices drop.
“World demand for grains — corn, soybeans and wheat — is up less than 1 percent, while global production is up a little over 2 percent, so that means we’ll end up with more stocks around the world. Because of that, prices look like they’ll be depressed for a period of time,” says Dan Basse, president of AgResource Company, summing up a reoccurring theme at the Cereals North America market outlook conference held in Winnipeg last week.
It will likely take poor weather to bring production and demand back into balance, as it’s unlikely U.S. and European governments will intervene to reduce supply as they have in the past, he explains in the interview above. Some marginal land might get turned back to livestock production, but farmers, especially if they’re enrolled in U.S. crop insurance programs, aren’t to the point of taking land out of production.
“As we think forward, I really can’t give you a governor — someone that will manage the supply of grain — other than mother nature and God. We’re left with a very different world than what we’ve seen before, with no supply management from a specific government or big exporting country,” says Basse.
Barring a weather problem, lower grain prices will stick around until demand accelerates to catch up with supply.
“We don’t know how many years this will take. It could be as short as three. It could be as long as 20. We’re not sure within that timeframe how quickly demand will change and what technology will do to yields,” he says.
Related:
- Relatively Steady Stuff — This Week in the Grain Markets
- Wheat Market Looking for News
- Time to Price ’15 and ’16 Crops? A Bearish Theme Prevailed at Cereals NA Conference
- Are We Heading for Another Farm Financial Crisis?
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