Consumption is outpacing crop production in the US and other grain-growing nations for the first time in years, and unfriendly weather isn’t helping matters.
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World soybean and wheat inventories are at their lowest points since 1996, with carryover corn stocks the tightest they’ve been in 27 years, said Chris Hurt, Purdue University agricultural economist. He warned that the gap between consumption and production could expand even further if 2002 crop yields are below average.
Crops around the world are struggling under drought conditions or problems caused by late planting. Carryover numbers dispel the myths that excess crop production is here to stay and low farm prices are a permanent fixture, Hurt said.
“I think there’s a feeling in the marketplace that we’re going to have perpetual crop surpluses,” he said. “We’ve been in that kind of situation since the 1998 crop, and a lot of producers think they won’t see higher prices. I think that is a mistake.
“We have to recognize that world stocks have tightened substantially. We’re virtually without surplus at this time. Any situation where there’s extra demand or lower supplies can lead to substantially stronger prices.”
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By GlobalDataStockpile shrinking
There is leftover grain from 2001, but the stockpile is shrinking. At the beginning of the year, US corn stocks stood at a projected 1.6 billion bushels, a volume consistent with the crop years of 1998-2000. That projection already has been lowered and could be reduced significantly more this fall if the corn harvest fails to reach the 9.8 billion bushel production level estimated by the US Department of Agriculture (USDA) earlier this month.
“We were already looking for carryovers to drop to about 1.5 billion bushels with the normal size crop,” Hurt said. “But as we begin to look around the US and see the weather problems that we have, we have to be talking about a crop smaller than 9.8 billion bushels. The futures market right now is trading closer to a 9.3 billion to 9.4 billion bushel corn crop. That reduction alone would drop our carryovers to about 1.1 billion bushels.”
Washed out
Planting in many areas of Indiana and the Eastern Corn Belt was literally washed out by wet weather in April and May, forcing farmers to put seed in the ground weeks behind schedule. Now that the corn and soybean crops have emerged, needed rainfall has stopped. Conditions are direr in the Western Corn Belt, where farmers are suffering from an extended drought.
“In the US we’ve not had a weather setback, in terms of yield loss, since 1995,” Hurt said.
Weather concerns also plague other world grain producers. Farmland in Australia is parched, and Canada’s productive prairie provinces are mired in the same drought aggravating the Western Corn Belt.
While weather plays havoc with the 2002 crop, consumption speeds along. Consumers are devouring grain at a faster rate than farmers can increase production, Hurt said.
“Maximum grain stocks were reached about 1998,” he said. “Since that time we’ve generally seen world consumption exceed production.
Rate of consumption increase
“The rate of consumption increase is in the range of 6-7% per year. The reason we’ve seen that kind of consumption increase is because we’ve had very low prices, primarily because South American farmers have increased soybean acreage dramatically in the last five years, by 50%. But US farmers also have increased soybean acreage.”
Higher prices
Tighter stocks and a potentially poorer 2002 crop point to higher cash prices for farmers this year.
“Corn prices already have increased substantially, in the range of 25 cents to 30 cents a bushel,” Hurt said. “Soybeans, in some cases, have experienced a dollar per bushel increase in price since spring, and wheat prices are at the highest levels we’ve seen since the 1997 crop.”
Grain prices are likely to bounce up and down in the weeks ahead as the market works through supply-demand issues, Hurt said. Farmers with grain to sell should keep a close eye on market trends, he said.
“The question is, are these prices high enough at this point to get the consumers of the world to cut back just a little bit?” Hurt said. “I think what we would tell producers is, ‘Be ready and be watching these markets’. We’ll probably have some very strong action to the upside during the next three to four weeks, and that really could be the next two weeks as we enter the period of primary silking on corn throughout much of the US.”
