A massive global grain supply boosted by record yields is pushing wheat prices to 10-year lows and driving down corn futures along with U.S. exports, acceding to analysts.
And American farmers taking the brunt of lower prices that are below production costs, according to analysts.
Why? Because with a strong dollar, weaker currencies of competing global producers have an advantage, explained grain analyst Ben Buckner, of the consultancy AgResource, in Chicago.
“We just have too much world wheat. It’s just really amazing,” said Buckner.
“Four-dollar wheat is terrible for the American farmer, but good for the Russian or Argentine farmer,” he explained. But while U.S. farmers are making less, farmers in Russia, the Ukraine and Argentina are making more, he noted.
The U.S. has dropped to fourth place in wheat exports, while the European Union and Russia are the two largest wheat exporters, according to AgResource.
“While the burden falls on us, we export less, producing less, farm income,” said Buckner. U.S. farmers are being pushed out of the world market unless cheap prices get even cheaper, he explained.
“We have all this supply, but we are for first time in two years, we are competing for exports, “ said Buckner. “As of today we have the cheapest corn and wheat, but that only happen if futures are below $4,” he observed. “If markets go up we lose demand.”
The overabundance of wheat is turning it into a feed grain that, in turn, is driving down corn prices, according to Rich Nelson, chief strategist of Allendale in McHenry, Ill.
“Since the summer, there has been a very strong correlation between wheat and corn--it is now priced as a feed grain,” observed Nelson. “With the new Egypt announcement (of zero tolerance for the fungus ergot in wheat shipments), we may need to lower our downside target to $3.70 December Chicago futures.”
December future for corn were put at $2.80 by AgResource in its 2016 price forecast, and July wheat at $4, according to a Reuters report.
So what should farmers do, or not do?
Farmers shouldn’t just sell at harvest, when prices are weakest, according to Buckner.
Instead, they should manage risk. “It’s all about management,” Buckner said. “If you make forward contracts … there will be opportunities every four of five months …”
Other analysts point to forward market upward swings. "At some point, the market will begin to focus on increased demand," said analyst Arlan Suderman of INTL FCStone.