Traders Predict Low Grain Prices Will Persist

March 29, 2017 09:06 AM
 
cutting-money

Agriculture traders seem resigned to the idea that low prices are here to stay.

Years of bumper grain harvests, along with low prices and diminished volatility, have made it harder for the top firms to make money buying and selling major crops like wheat, corn and soybeans. Gluts, which have pushed crop prices to near the lowest since 2009, will probably last for a while yet, executives said at the FT Commodities Global Summit in Lausanne, Switzerland.

“Prices will remain under pressure unless we develop a weather problem,” Gonzalo Ramirez Martiarena, chief executive officer of Louis Dreyfus Co., told the conference on Tuesday.

During the boom years, the industry thrived on price swings and expanded in a bet that bigger populations would drive food demand and profits. But massive harvests have helped push the Bloomberg Agriculture Subindex down almost 50 percent since 2012. That’s forced a shake-up at many companies, including Archer-Daniels-Midland Co. and Chinese food giant Cofco Corp.

For more on problems faced by agriculture traders, click here

Agriculture commodities were mixed in trading on Wednesday. Wheat, corn and soybean futures advanced, while sugar and coffee retreated.

The industry is still being plagued by over-investment and a lack of supply discipline, said Chris Mahoney, head of Glencore Plc’s agriculture business.

“At the moment, there is no shortage,” he said at the conference. “People sitting on their hands for three or four years would help.”

Trading Information

Trading also became more difficult in the past decade as the market has greater access to information about prices and physical flows, Mahoney said. Building relationships isn’t as important as it used to be, and such problems are here to stay, he said. Owning infrastructure is key to thriving in the trading business, he said.

Glencore, which sold half of its agriculture division last year to cut debt, last month said it wants to expand into U.S. agriculture. The commodity trader and miner is looking at assets such as export terminals and inland silos, or buying a complete business, people familiar with the matter said at the time.

“We like asset-heavy businesses; the right size and scale; big assets,” Mahoney said. Glencore may have an advantage buying assets in some markets because the largest traders -- ADM, Bunge Ltd., Cargill Inc. and Louis Dreyfus -- may be constrained by anti-trust issues in some regions, he said.

Agriculture merchants may have to place more emphasis on cost savings, said Carl Casale, president and CEO of farmer cooperative CHS Inc.

“It is not so much about trading, it is about supply chain management,” he said at the conference, adding that asset valuations are too high. “The opportunities are not there yet.”

(Updates with agriculture prices in fifth paragraph.)

To contact the reporters on this story: Agnieszka de Sousa in Lausanne at atroszkiewic@bloomberg.net, Andy Hoffman in Lausanne at ahoffman31@bloomberg.net.

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Nicholas Larkin

©2017 Bloomberg L.P.

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Comments

 
Spell Check

Craig
Kearney, NE
3/30/2017 07:19 AM
 

  Without a mandatory government set aside(another CRP?) which we seem to need every 30 years or so, it will take a massive weather event to change commodity prices for the better. And even then, prices will only be better temporarily. 8+ years of negative real interest rates have destroyed production Ag via the mal-investments such free money has spawned. There is no way that land at these bubble prices works with commodity prices at these levels. When this bubble finally pops, things will be much worse than the 1980's. We are on the cusp of a massive readjustment in production Ag. Lots of people are going to be crushed. Unfortunately, that's what its going to take to finally straighten things out

 
 
Zagnut
Eastern, NE
3/30/2017 10:24 AM
 

  We're at the point of the 1980's now. Only thing keeping us from falling over the cliff is the interest rate. Investors that have the land today were looking for a value appreciation to sell it in a few years. Currently, there is no value appreciation. Now, there are some farmers with deep pockets. They've got another source of cash flow besides farming to keep them buying ground at unsustainable prices. Or, they've traded real estate in areas of suburban development and are causing a 1031 exchange driving up the price. To me, land is an income producing asset. If it can't produce the income, I don't want it. Trump's trade rhetoric and lack of trade policies are going to drive production ag into the ground. How close are we to a 30's mass exodus from ag? Not created by drought this time, but lack of money and inability to pay confiscatory property taxes.

 
 
0ld S.W.Mn. Farmer
Worthington, MN
3/30/2017 08:14 AM
 

  I tend to agree Craig but not so sure even a 50% set aside would work if it were only in the U.S.,only way any set aside would help is if it were world wide,which ain't gonna happen,our only hope I believe is extreme wide spread weather related disaster,plain and simple Agriculture(farmers) just can't seem to wrap their head around the fact that over production creates low prices,not just LOW but under cost of production, no one sees any light at the end of the tunnel for 2-3 yrs. short of that catastrophic weather event.

 
 

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