Currently, grain prices have never maintained such high prices for this length of time. This is because the demand for the commodities is not being met by the supply. For corn, the United States Department of Agriculture is projecting a 148 bushel/acre yield for the U.S. compared to last year’s yield of 164.7 bushel/acre. The projected ending stocks of corn are at 672 million bushels compared to last years ending stocks of 1,708 million bushels. Wheat is experiencing the same problem as corn. The projected ending stocks for September are 761 million bushels compared to last year’s 976 million bushels. The soybean yield estimate is smaller than last year’s yield but the ending stocks for this year are larger compared to last year’s due to an increase acreage planted. These numbers are down because of the high amounts of water experienced early when farmers were planting. Many were not able to get a lot of their acres planted and this has caused the grain prices to remain high. The main concern for a grain merchandiser or a price and risk analyst is the volatility of the market that can cause them to lose money if they were to expose themselves to the risk.
The global demand for agriculture commodities and lack of supply in the past few years is causing grain prices to remain high. The grain markets are very volatile right now meaning there can be large changes in prices in a short amount of time. For example, there can be 40-50 cent prices changes in a matter of minutes compared to the past, where a significant price change was 10 cents in an entire day. A grain merchandiser needs to be aware of what the market is doing and where it is heading to avoid losing substantial amounts of money. For example, a grain merchandiser buys 100,000 bushels of soybeans at 13.50/bushel cash price and does not hedge the grain that was just bought. Now the grain merchandiser runs the risk of the market going down. Let’s say now a week later the market has gone down 75 cents and the merchandiser sells the 100,000 bushels of grain at 12.75/bushel. They receive a lot of money for selling that amount but they paid $75,000 more than what they sold it at. The grain merchandiser has lost $75,000 because they did not hedge the grain when it was bought and the price dropped. This volatility in grain prices, from the lack of supply and the large demand from the growing world population, has caused many people that work in the agriculture industry to lose almost everything they have. Looking to the future population and agriculture estimates, this will only grow into a larger problem facing the world.
This post certainly points out the difficult nature of farming and getting the right price, especially in today's economy. I can see this affecting cattle farmers as well, prices remaining high means they can't feed their stock. Does that mean fewer buns (wheat) and burgers (cattle) in the future?
ReplyDeleteThis blog definitely got my attention. I am one who is pretty tight with my money and spending habits especially when it comes to things like food and groceries. It is therefore concerning to me that prices of some of these commodities is quite volatile and that the growing world population will have a major impact on this issue.
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