“It’s really an exciting time for agriculture and producers. If corn gets too cheap ethanol will bring it back and wheat and soybeans will follow corn.”
– KENDELL KEITH
Recession or not, people still have to eat and that bodes well for the world’s grain sector, three panelists told the Canada Grain Council’s 40th annual meeting in Winnipeg April 7.
World grain prices will continue to be volatile and free marketers will have to fight increasing protectionism and resist calls to create an internal grain reserve aimed at stabilizing supplies and prices.
“Although farming cannot detach itself totally from the financial crisis, the trends show there’s a renewed financial interest… and agriculture is possibly in a stronger position than other industries,” said Pamela Kirby Johnson, director general of the Grain and Feed Trade Association in the United Kingdom.
During the last big, global recession in 1982, grain trade volumes changed little, said Kendell Keith, president of the National Grain and Feed Association in the United States. World grain prices are dramatically down from their peaks in 2008, but still 40 per cent higher than they averaged between 2003 and 2006, he said.
Grain price volatility will continue as investors come back to futures markets believing them to be a better bet than stocks, Keith said.
Demand for grain to make biofuels will also add to the volatility, especially when supplies are short because of poor crops following bad weather.
There is a direct correlation between corn and crude oil prices; as oil goes up so will the price of corn and soybeans and wheat prices will follow, Keith said later in an interview.
“There really is a growing disconnect between stocks-to-use ratios and prices,” he said.
“It’s really an exciting time for agriculture and producers. If corn gets too cheap, ethanol will bring it back and wheat and soybeans will follow corn.”
Farmers need to embrace the ups and downs in prices because they create opportunity, he added.
“I just think farmers are going to have to be prepared to price grain when it’s favourable to them,” Keith said.
The recession is increasing the demand for wheat and rice as some consumers cut back on meat consumption, said Klaus Schumacher, head economist with Toepfer International in Brussels. That means less demand for feed grains and meat.
“But overall, I think it is true the price elasticity for foodstuffs is, or has become, relatively low and we’ll have no massive demand reduction in our sector,” he said.
Schumacher described the public’s recent tendency to have more faith in the business acumen of governments rather than car companies and banks as “a little scary,” and warned meeting participants not to allow that attitude to spill into the grain sector.
Russia is already heading down that road, he said, creating a government agency to market surplus stocks of wheat, barley and sunflowers.
“They are going back to an old-fashioned Exportkleb,” he said.
In addition, the Russians are considering renationalizing their grain storage silos.
Earl ier Keith noted the American Agricultural Movement and National Farmers Union is advocating the return of a U. S. grain reserve and the creation of an international reserve as well. Both Keith and Schumacher said it would be a bad idea. The best solution to assuring grain supplies is to allow the free markets and free trade to work, they said.
In separate interviews later both men said developing nations are pushing a reserve in hopes of increased food aid. Both said past experience has shown governments react too slowly and intervention ends up doing more harm than good.
“They (most U. S. farm groups) realize stockpiling (grain) will depress prices and depress opportunities,” Keith said.
Processors burned because they didn’t expect grain prices to rise or fall as quickly as they did, are looking for ways to stabilize prices and supplies, Schumacher said. One option is to pay farmers the cost of production, with others through the supply chain adding on their costs. It’s something traders aren’t prepared for, he added.
“I’m not sure how it will work out,” Schumacher said in an interview. “I’m skeptical in that respect. The moment we have relatively flat prices for a year or two this idea will die anyhow. But we’ll have to discuss more alternative marketing approaches than in the past. This goes without saying.” [email protected]