It’s a tale of two markets, says David Glidewell — a transition from very tight world supplies of corn and soybeans and extremely good demand to “more relaxed markets and more plentiful supplies.”
The tightness and low stocks-to-use ratios for oilseeds has been driven primarily by China, and by worldwide demand for feed grains and corn, he said at the Mississippi Farm Bureau Federation’s annual commodity conference at Jackson.
Glidewell, who is Mid-South regional manager for ADM at Marion, Ark., says if U.S. farmers plant the acreages this year that most analysts expect and have decent yields, and the expected “extremely large” South American soybean crop comes to market shortly with no problems, “we’ll begin moving to more plentiful supplies and an easing of the tight stocks-to-use ratios.”
“The obvious expectation of this transition is that we’ll see prices coming under pressure from current levels as we have more and more assurance that supplies are indeed increasing.”
While many factors can have an impact on the degree of the anticipated price declines, Glidwell says, “the biggest single factor — as always, every year — will be the weather.”
The growth of corn production in South America is becoming a significant factor in the market, he notes.
“Year-in, year-out Argentina has been one of the world’s largest corn producers, particularly for export. Brazil has been a relatively small corn producer, but last year they had a huge second crop, which tends to be planted mid- to late February following soybeans.
“That crop, unlike their first crop, which essentially burned up due to drought and heat, was a bin buster. That’s why the corn basis was so cheap last August and September and the U.S. couldn’t find bids for export. At the same time we had a huge Mid-South crop coming to harvest, the Brazilian second crop was being offered at a steep discount to the U.S. price.
The Brazilian second crop “is a big question mark as far as U.S. exporters are concerned,” Glidewell says. “Will it be as big as last year? We don’t know. It hasn’t been planted yet. Conditions in northern Brazil still somewhat wet, but longer term that could bode well for a second crop. So, we have to keep an eye on this.”
Brazil’s second crop, along with the ramp-up in Argentine corn production, thanks to high world corn prices, has led to south America becoming “a rather significant producer of corn,” he says.
After hot, dry weather in the U.S. corn belt, the Southern Plains, and Texas took a heavy toll on last year’s corn crop, Glidewell says everyone is trying to get a handle on the weather for the 2013 growing season.
“There are predictions of a continuation of the drought, and conversely there are those who say we’ll have more normal weather. The market and traders will be watching this very closely.
“Central and southern Illinois, and central and southern Indiana, which are key corn and soybean-producing areas are very, very deficit in subsoil moisture. They bore the brunt of last year’s drought, and have not had replacement moisture at levels needed to get back to normal. This doesn’t mean they can’t still make a good corn or soybean crop — it just means that timing of rainfall will be much more important as we go through the growing season.”
In the 1990s, Glidewell says, “We were in a situation where one big crop could mean surpluses and several years of poor prices. Now, that balance has changed on a worldwide basis. As the economies of India and China have improved, demand for protein has increased substantially, which has driven demand for basic ag commodities to the point that we can’t afford to have a significant shortfall in production of any of the major staple grain crops for any length of time.
“And if there is a shortfall, there will have to be price appreciation to try and attract those bushels or tons back into production.”
Surpluses aren’t necessarily bad, Glidewell says. “In the past, they were burdensome and often kept prices down for years, adversely affecting producers and the economies that depended on those producers.
“But today, we have to be concerned about price volatility, prices exploding due to shortages, which wreaks havoc with demand. And demand destruction from high prices is something you don’t overcome right away.
“If a cattle farmer goes out of business because of high feed prices, he may not come back into business. Someone else may take over that land and raise cattle on it when prices improve — but demand destruction form high prices can be a long-lasting situation.”
It’s very important, Glidewell says, to have a stable supply of the major commodities. “The demand basis worldwide is such that we can’t afford to shift too far to one crop or another without having an adverse impact on other commodities.
“Weather has become a much more volatile market fundamental in today’s environment, by causing significant shifts in key production areas. The Black Sea region, for example, has become a major grain exporting region of the world. This is a somewhat arid region of Ukraine and southern Russia, and if they miss needed rain, the wheat crop slips, and it has a significant impact on grain prices.
“Ukraine and Romania have become new sources of production, which is being brought on by their transition to more market-based economies, and of course it also has been driven by higher grain prices.”