Written by Amy-Jean MacLean
Current world grain and oilseed supply is expanding faster than demand, this year reaching a record of 501 million metric tonnes.
Dan Basse, economist and president of AgResource Company says in order to balance out, North America would need to cut production by about 20 million acres in five years, which would be hard to do without government help.
“By that I’m saying we used to have programs like conservation reserve, or we used to have set-aside programs when stock-to-use ratios go to such levels that farmers go paid to plant, or not plant depending upon the countries, so all of that is lacking today, and that leads to ever-rising grains supplies, unless we have a supply dislocation proven by Mother Nature,” says Basse.
Declining grain and livestock prices have also contributed to the biggest year over year decline in U.S. net farm income since 1931, although Basse doesn’t think grain prices haven’t bottomed out yet. He thinks cash grain markets could hit their lowest in late February or early April.
“Farmers don’t like the low prices that are being offered, and so because of that they’re hoarding grain, which may give us a rally into the December, early January time frame,” says Basse. “But thereafter, we start thinking about planting another crop in the northern hemisphere, the banker will pressure farmers to raise cash, and a lot of that will mean sales of cash grain.”
Basse says as grains and oilseed stocks continue to increase, profitability pressures will also continue for farmers on a global perspective. Down cycles like this are part of the agricultural landscape, and he suggests farmers be more protective of their profitability.