Producers should expect a continuation of highly volatile crop prices over the next several years, but relatively strong prices due in large part to strong export demand, and, of course, ethanol use. That’s the message from Joseph Glauber, chief economist of USDA.
Furthermore, corn stocks will be rebuilt from current very low levels as high prices will stimulate production worldwide, but it will take about two or three years. "It’s hard to rebuild stocks overnight." He sees corn prices $4-plus five to 10 years out and higher than that if energy prices remain high with farm costs so tied to energy.
Glauber spoke at a meeting on recognizing the risks in global agriculture sponsored by Federal Reserve Bank of Kansas City.
Glauber added in response to a question from AgWeb that it’s difficult to be precise in predicting when stocks will be rebuilt because so much depends on yields and demand. But that said, the last 60 years suggests that high prices stimulate more production and the eventual rebuilding on stocks. "It’s hard to argue against that," he states.
Acknowledging that some believe the land price boom is a bubble, Glauber nonetheless does not expect a crash in values, as land reflects underlying fundamentals, "even with $4 corn," although run-ups of 20% that have occurred in two Federal Reserve Districts "are certainly not sustainable." Some softening of values is possible if commodity prices come down somewhat.
Glauber also says that he does not believe that non-ag investment in commodity markets is driving prices overall after reading several studies on the impact of funds on prices. "Over the longer term, fundamentals rule these markets," he says. Looking at an individual day, however, it can appear that outside investment has a bearing on market movement, he adds.
One reason Glauber is optimistic for agriculture over the next few years is the outlook for strong exports, which are now at record levels. However, the growth in U.S. market share may be reduced, which is to be expected with prices at such high levels. "About 60% of soybean exports in the world go to China. We’re looking for that maintaining if not increasing." India also is emerging as a strong customer, he notes.
While most of U.S. exports to China have been soybeans, he sees the possibility for increases in corn exports, too, as China is increasing its non-food-usage of corn. China is also increasing its feed use due to higher levels of poultry and pork production. Remarkable on corn exports to China is that until recently, the nation was a substantial exporter of corn.
One hurdle for all major crops is the need to double production over the long term to meet increasing demand, particularly in developing nations for higher diets of animal protein. "The challenge will be coming up with the production."
Furthermore, Glauber adds, unlike the commodity boom in the early 1970s, there are few additional acres in the U.S. that can be brought into production. The only acres available are in the Conservation Reserve Program (CRP), and it’s debatable how many of those acres should be brought back into production because of environmental sensitivity, he says.
One important factor making U.S. agricultural so competitive worldwide, Glauber says, is the inexpensive dollar relative to other currencies, and he sees nothing to reverse that in the short term. That’s important, because crop prices in Brazil have not seen the rate of increase that they have in the U.S. because of the relative value of the dollars versus the Brazilian real.
On U.S. soybeans, he says that demand has been growing at an incredible rate of 4.4%, "and I don’t see any letting up."
In the near term for cotton, Glauber predicts "a record amount of abandonment of acres in West Texas," due to the extreme drought. Texas is the No. 1 cotton producing state. He also notes that both China and India are strong U.S. cotton customers.