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 and most certainly not an $8. Case in point: prices projected by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri call for corn prices under $5/bu. for 2014-23. USDA and some other analyses agree. FAPRI director Pat Westhoff gives a 10% chance each of corn prices exceeding $6 and falling below $4 in any given year. He spoke at a recent global ag symposium sponsored by the Federal Reserve Bank of Kansas City.
Why the increasingly bearish tone to the intermediate term forecast? "Agricultural productivity has increased here and around the world," he says. Global corn use is increasing at a slower rate than yield increases, his numbers show. From 2010 to 2012, global corn yields increased by 1.4% or 1.1 bushels per acre, while per capita corn use increased slightly less, by 1.3%. The trends are similar for 1990 to 2012.
In addition, over the past eight years, 147 million additional acres in cropland have been added worldwide and most of that for corn, says Mike Boehlje, ag economist at Purdue. South America has added the most total cropland, 40.2 million acres, followed by the Former Soviet Union, 28 million; East Asia, 21.7 million; North America, 18.3 million; South Asia, 15.5 million; and Sub-Saharan Africa, 14.6 million acres. If these trends continue, it will be tough for long and extended price rallies to occur that producers have enjoyed the past few years, 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, strategy and policy advisor for the World Bank. "Grain prices may 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? One is that of late, use is growing faster than supply. From 1991 to 2000, world grain output grew by 1.8% while world grain utilization was slightly less at 1.7%. From 2006 to 2011, however, 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 (FAO) of the United Nations predicts output to increase by 6.5% compared to utilization increases of 2.9%.
Delgado is also more bullish on crop prices because the most growth in grain exports since 1990 is from areas with variable climates, and this adds up to more year-to-year volatility in both supply and price. He also has real concerns about how climate change could impact global yields. With a 2 degree change in climate warming between now and 2050, annual corn yields would increase by only 0.1% as opposed to 0.6% without climate change, he says. This would occur as the population approaches 9 billion people, Delgado adds.