Bull or Bear? You Choose

September 4, 2013 09:42 PM
Bull or Bear? You Choose

By Ed Clark and Julie Deering

For the upcoming decade, most analysts—though certainly not all—are looking for corn prices to have a $4 in front of them, not a $7.

Case in point: Prices projected by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri call for corn prices less than $5 per bushel for 2014 through 2023.

There’s a 10% chance for corn prices to exceed $6 and fall below $4, says FAPRI director Pat Westhoff, who spoke at a recent global ag symposium sponsored by the Federal Reserve Bank of Kansas City.

Why the increasingly bearish tone? "Productivity has increased here and around the world," Westhoff says, noting that his numbers show global corn use increasing at a slower rate than yield increases.

From 2010 to 2012, global corn yields increased by 1.4% or 1.1 bu. per acre, while per capita corn use increased slightly less—by 1.3%.

During the past eight years, 147 million acres of cropland have been added worldwide, most of which is for corn, says Mike Boehlje, Purdue University ag economist.

South America has added the most cropland at 40.2 million acres, followed by the former Soviet Union at 28 million acres. East Asia has added 21.7 million acres; North America, 18.3 million acres; South Asia, 15.5 million acres; and Sub-Saharan Africa, 14.6 million acres.

If these trends continue, it will be tough for long and extended price rallies to occur, Westhoff says.

Not everyone reads the tea leaves the same way. The future for U.S. grain and oilseed producers is largely a bright one, contends Christopher Delgado, World Bank strategy and policy adviser. "Grain prices might slacken a bit this year, but they will not return to pre-2008 levels in the foreseeable future," he says.

What makes him so bullish? Use is growing faster than supply. From 1991 to 2000, world grain output grew by 1.8% while utilization was slightly less at 1.7%. However, from 2006 to 2011, output grew by 1.8% while utilization increased to 2.3%.

That’s expected to change in the upcoming year. From 2012/13 to 2013/14, the Food and Agricultural Organization of the United Nations predicts output to increase by 6.5% while utilization is forecast to increase 2.9%.

Wheat Prices Weaken

Down 10¢ from the July forecast, the average U.S. wheat farmer is expected to receive about $6.40 to $7.60 per bushel, according to USDA’s August Wheat Outlook report. This weakening price is a result of two things, says Edward Allen, USDA cross commodity analyst for field crops.

The first is the expected large corn harvest. "The support wheat has derived from pricing itself relative to corn will disappear when corn is harvested this fall," Allen says. "The second is July’s prices were not as strong as we thought, and that’s typically when farmers do a significant amount of marketing."

Globally, we’re on track for record wheat production, Allen says. U.S. wheat demand is forecast to be strong for the 2013/14 U.S. marketing year at a time when stocks are tightening. U.S. wheat exports are projected up 25 million bushels this month to 1.1 billion, with major purchases by China and Brazil.

wheat highlights chart


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