When everyone does their job in agriculture, commodity prices go down. It’s how a market works: low supply means higher prices, and with higher prices demand is rationed until prices fall back down. If there was a You Are Here sign for markets, this is it.
When agriculture is doing its job, says Jody Lawrence, founder of Strategic Trading Advisors, the entire industry is working to coax every last bushel off of every acre. The trouble is, if demand falls off, dries up or goes elsewhere, prices slide, sometimes below a level of profitability.
As corn prices move, some input costs realign — albeit more slowly — but other big costs, such as land rents or fertilizer, are still quite dear versus current and future corn prices, Lawrence says.
Increased or new demand for not just corn but soybeans too is necessary to pull this market out of the doldrums, but that is easier said than done.
“We’re now on the wrong side of China… If somebody was selling you something, would you go to somebody who’s always in your business, telling you that you’re doing stuff wrong, or go to somebody selling the same product who says, hey, you know, we like you thank you for your business, we’re happy you’re our customer,” Lawrence says, referring to the South American attitude towards China.
So if not China, where will demand come from? India is of growing interest, but domestic policies are in motion to chew through commodities too, including biofuel and renewable fuel mandates. Pointing to the sustainable aviation fuel industry specifically, Lawrence says it will take time to right-size the industry, but he’s confident that no matter who wins the U.S. election in November, biofuel support will remain.
Listen to the entire interview with Jody Lawrence and Shaun Haney recorded at the Helena Agri-Enterprises event at Nashville, Tennessee this week:
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