Posted by: usset001 | August 27, 2014

Is the slump in grain prices here for the long term?

Demand DriversI received an interesting question this morning that asked for my longer-term opinion of the grain markets.

Question: I enjoy your articles. Do you think the slump in grain prices is a long term thing or more a temporary thing? I have finally made some money these years of the good prices and don’t want to risk losing what I gained with several years of low prices and these high expenses. I realize nobody knows the future but I would appreciate any thoughts or help you could give me.

My response: I am happy to share my opinion but keep in mind that my opinion and $5 will buy you a latte just about anywhere in the Twin Cities.

I think the last seven years (2007-2013) were extraordinary years for grain production and profitability, and it is unrealistic to assume that “extraordinary” would continue indefinitely. The grain complex was headed for a downturn in 2012, but the drought postponed the fall. In corn, ethanol demand has been the biggest story in the past two decades but look close and you will see that ethanol demand for corn has flattened out in the past four years. In soybeans, growing Chinese imports have mirrored the ethanol/corn story and have yet to flatten out. That said, take a look at today’s WSJ, with a large story on growing Chinese grain stocks.

My view of the last seven years is that disruptively fast growing demand has been the spark that created these extraordinary years. That spark has flattened in corn and may be in question in the soybean market. I think producers should make plans based on more “normal” returns to grain production and prepare for the possibility of several years of below normal returns.

My opinion is a bit of a downer but you can take heart in the fact that I have been wrong (many times!) before. Good luck harvesting your grain – I hope you have a great crop.


Responses

  1. Sure don’t see fertilizer and seed companies having to compensate for tougher leaner years. Still keeps going up. Farmers just have to take the stand of keeping land out of production. Control your own destiny and never mind what your neighbours are doing.

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