When you get right down to it, covering grain markets is kind of like sports reporting. Depending on your perspective, the outcome at the end of the day is either win, lose or tie. There’s only so many ways to describe that, just as there are only so many ways to describe why the market has moved up or down.
Therefore, sports journalism is prone to clichés such as, “We just have to put together a solid offence and play 60 minutes of football.” In grain market analysis, the inevitable cliché (which we’ve heard quite a few times lately) is, “The cure for high prices is high prices.”
If that were true, it would mean that the world’s farmers increase acreage and inputs when prices were high, and decrease them when prices are low. In fact, the world’s total crop acreage changes very little from year to year. As for inputs, the more likely pattern is that farmers maximize them to take advantage of high prices, and maximize them when prices are low so they can compensate with more volume.
Here’s what happened to world crop area, production and prices from 2013 to 2014:
- Wheat: World area was up 0.245 per cent, production was up 0.72 per cent. U.S. area was up 2.2 per cent, production was down 5.1 per cent.
Most of the world wheat crops harvested this year were planted in September 2013, and prices today are down 10 per cent from then. Conclusion: Wheat producers have zero control of prices.
- Corn: World area was down 1.5 per cent and production up 0.11 per cent. U.S. area is down 5.2 per cent and production is up 3.46 per cent.
Compared to last spring when most of the world’s corn was planted, prices are down 23 per cent. Conclusion: Cutting corn acres sure doesn’t seem to do much to help prices.
- Total world oilseeds: Area is up 2.1 per cent and production up 4.74 per cent. U.S. oilseeds: Area up 11.5 per cent, production up 18.34 per cent. Since last April, soybean prices are down 30 per cent.
Those soybean acres all came out of corn. Conclusion: It all comes out in the wash, and then some.
So what’s the real cure for high prices? Rain in the U.S.